GAQC Alert No. 126 

    Published September 24, 2009

    GAQC Issues Schedule of Expenditures of Federal Awards Practice Aids

    Dear Center Members,

    The purpose of this Governmental Audit Quality Center (GAQC) Alert is to inform you about the issuance of several Practice Aids relating to the Schedule of Expenditures of Federal Awards (SEFA). These Practice Aids have been issued by the GAQC in response to audit quality deficiencies cited in a federal study on single audit quality. After reading this GAQC Alert, you will:

    • Understand the background of why there is a need for these Practice Aids;
    • Have access to two auditor Practice Aids—an audit program and a disclosure checklist;
    • Be able to refer your clients to two auditee Practice Aids to assist them in preparing the SEFA;
    • Understand other SEFA resources available to you; and
    • Gain an understanding the status of other single audit quality efforts nearing completion.

    Background

    The GAQC launched a series of task forces to address deficiencies that were noted in a federal study on the quality of audits performed under Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (Circular A-133)—also referred to as single audits. As we reported in GAQC Alert #52, the study results are detailed in a report titled, Report on National Single Audit Sampling Project (the PCIE report), that was issued by the President's Council on Integrity and Efficiency (PCIE). The report can be accessed by clicking here. One of the AICPA task forces established in response to the PCIE report was the SEFA Task Force (TF). The SEFA TF charge was to: (1) review the deficiencies noted in federal study relating to the SEFA: (2) review the PCIE report recommendations; and (3) determine appropriate responses.

    SEFA Deficiencies Noted in the PCIE Report. The following are among the SEFA deficiencies cited in the PCIE report:

    • Audit documentation did not contain evidence that audit work relating to the SEFA was adequately performed;
    • Audit documentation did not contain evidence that audit programs were used for auditing the SEFA; and
    • OMB Circular A-133 §.310(b) requires the auditee to include a SEFA as a supplementary schedule with the auditee's financial statements. The Circular prescribes minimum content requirements for the SEFA. In 49% of the audits reviewed, some portion of the required SEFA content was missing.

    SEFA-Related PCIE Report Recommendations. The PCIE report included a number of recommendations, including several specifically directed at the AICPA to enhance existing guidance or develop new guidance. Among the PCIE SEFA-related recommendations are the following:

    • The AICPA Audit Guide, Government Auditing Standards and Circular A-133 Audits (the Guide), should be revised to describe procedures an auditor should perform to properly audit the SEFA.
    • The Guide should also be revised to (1) emphasize the specific SEFA content and format issues noted in the PCIE report; (2) emphasize that correct SEFA content is critical for determining major programs; and (3) remind auditors that an auditee's lack of internal control over SEFA preparation is likely a control deficiency that needs to be evaluated to determine if it is a significant deficiency or material weakness.

    SEFA TF Actions. The first step the SEFA TF took was to update the Guide, to more clearly describe the auditor's responsibilities relating to the SEFA. Those updates occurred in the 2008 revision to the Guide and can be found by reviewing Chapter 7, Schedule of Expenditures of Federal Awards. The SEFA TF then worked to develop illustrative SEFA Practice Aids to clarify the procedures to be performed by the auditor on the SEFA and provide an example of related documentation. Because preparation of the SEFA is an auditee responsibility, the SEFA TF also decided to develop illustrations directed at auditees to further enhance the content, presentation, and accuracy of an auditee's SEFA.

    SEFA Practice Aids

    The SEFA TF developed four illustrative Practice Aids to assist auditors and auditees. The Practice Aids are described below and may be accessed through the links provided or through the Single Audit Practice Aids page on the GAQC Web site (found through the Resources tab, under Research Tools and Aids).

    SEFA Auditor Practice Aids PDF(publicly available) or Word(members-only) .

    The SEFA Auditor Practice Aids are intended to assist auditors in determining whether the SEFA includes all required elements, is accurate and complete, and that the auditor's procedures relating to the SEFA are appropriately documented. It should be noted that these Practice Aids have been reviewed by the AICPA's auditing standards team, as well as OMB. These Practice Aids are no authoritative status and their use is not required. However, the Practice Aids may help you understand and apply certain auditing standards. Further, the GAQC believes that audit quality will be enhanced by their use. Auditors that already have their own internal SEFA audit programs or guidance and do not wish to use the GAQC Practice Aids are encouraged to compare them to the internal guidance to identify areas that are incomplete or may need to be enhanced. Note also that the SEFA Auditor Practice Aids will be incorporated in the 2009 version of the Guide (expected this fall) as illustrations to Chapter 7. Finally, these Practice Aids do not contemplate any additional SEFA or other auditor requirements relating to the American Recovery and Reinvestment Act of 2009 (Recovery Act). Watch the GAQC Recovery Act Resource Center on the GAQC Web site for further updates, illustrations, and tools relating to the Recovery Act.

    Audit Program Supplement for the SEFA

    This Practice Aid provides the auditor with an illustrative audit program as a tool to document the procedures performed for purposes of providing the required in-relation-to opinion on the SEFA. The audit program also provides additional procedures needed to determine the accuracy, completeness, and presentation of the information included in the SEFA for purposes of the auditor's major program determination and to meet other single audit requirements.

    Auditor Disclosure Checklist for the SEFA

    This Practice Aid is intended to assist the auditor in determining whether the auditee's SEFA includes all of the elements required by Circular A-133 .

    SEFA Auditee Practice Aids PDF or Word (both publicly available)

    The SEFA Auditee Practice Aids are intended to assist auditees in their important role of ensuring that the SEFA is prepared accurately and completely. We encourage you to share these Practice Aids with your clients. The GAQC is leaving them unlocked on the GAQC Web site.

    Worksheet for Identifying Federal Program Information

    This Practice Aid is intended to assist the auditee in accumulating and documenting important information for each of its federal awards. This information could be provided to the auditor at the beginning of the single audit.

    Auditee Disclosure Checklist for the SEFA

    This Practice Aid is intended to assist auditees with preparing a SEFA that includes all of the elements required by Circular A-133.

    Other SEFA Resources

    In addition to the Guide enhancements and Practice Aids referred to above, the following are SEFA resources that are available. GAQC members and their staff should:

    • Be familiar with the SEFA-related provisions of Circular A-133.
    • Review the PCIE report to be reminded of the various single audit deficiencies noted, including those relating to the SEFA.
    • Review Chapter 7 of the Guide in its entirety for a description of the various auditor and auditee requirements relating to the SEFA, as well as for additional SEFA guidance.
    • Listen to an archived conference call titled, Schedule of Expenditures of Federal Awards – Reporting Improvements & Suggested Procedures which is available on the GAQC Web site. This call was designed to point out the unique aspects of auditing and reporting on the SEFA, with special attention provided on the aspects of the PCIE report that related to the SEFA. This call also provides suggestions on ways to improve audit work and documentation surrounding the SEFA.
    • Encourage clients to listen to an archived conference call titled, Preparing for Your Single Audit: An Auditee Perspective,which is primarily intended to help auditees better understand the requirements of Circular A-133, the various responsibilities placed on auditees, and tips for preparing for a single audit. Among the many topics covered, this call discusses an auditee's responsibility for the preparation of the SEFA. To access this archived conference call which has been left open to the public, click here.

    Looking Forward: Status of Other Single Audit Quality Efforts

    The SEFA Practice Aids are the first of several significant expected issuances in response to the PCIE report. The task forces established to respond to other single audit deficiencies have been busy and are nearing completion of their projects and related audit guidance as well. The following is intended to provide you with a quick status update on their work. The GAQC will notify you as future developments relating to each of the following areas occur.

    New 


     Auditing Standard. The TF established to reexamine Statement on Auditing Standards (SAS) No. 74, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance(AICPA, Professional Standards, vol. 1, AU sec. 801), in light of the deficiencies cited in the PCIE report has developed a new standard that will supersede SAS No. 74. The new standard to be titled, Compliance Audits, was recently approved by the AICPA Auditing Standards Board (ASB) and is in the process of being finalized for issuance. It will be effective for compliance audits for fiscal periods ending on or after June 15, 2010. Earlier application will be permitted.

    Sampling in a Single Audit Environment. The TF working in this area has developed a new chapter that is expected to be added to the 2009 version of the Guide (to be issued this fall). The chapter will be comprehensive and cover the specific nuances of sampling in a single audit. It will also include sample size tables. The chapter is currently with the ASB for final clearance and once that clearance is received the chapter will be sent to OMB for review. The chapter will be effective upon issuance in that it provides interpretations of currently effective auditing standards and does not set any new audit requirements.

    Internal Control Over Compliance. This TF enhanced the guidance in the 2008 version of the Guide on the auditor's responsibility for understanding and testing internal control over compliance in a single audit. The TF then proceeded to develop illustrative Practice Aids to provide examples of how internal control over compliance might be documented. The Practice Aids have been reviewed by both the AICPA auditing standards team and the OMB. The TF is now in the process of finalizing the Practice Aids.

    Findings. The TF working on findings has been working to develop illustrative Practice Aids to assist auditors in developing and documenting finding write-ups. The draft illustrations are still in process and have not yet been shared with the AICPA auditing standards team or OMB.

    As noted earlier, the GAQC will keep you informed as future developments in these areas occur.

    * * * * * * * * *

    Sincerely,

    AICPA Governmental Audit Quality Center

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