GAQC Alert No. 195 

GAQC Alert
OMB Releases Draft 2012 Compliance Supplement for Use in Audit Planning
May 24, 2012
GAQC Alert #195
In This Alert
How to Access the Draft Supplement on the GAQC Web Site
Key Changes to the Supplement
Timing of Issuance of Final Supplement
Upcoming GAQC Web Event on the 2012 Supplement
A Reminder About the Importance of the Supplement
Rebroadcast Opportunities for Required Webcast
Two CPE rebroadcast opportunities are available for the required GAQC Webcast titled, 2012 Annual Update, on Friday, June 8, 2012, and Wednesday, July 11, 2012, from 1:00 PM-3:00 PM (Eastern Time). See GAQC Alert #194 for information on how to register. There is also a no-CPE archive of the Webcast available. Access the No-CPE archive.
Find Governmental Guidance, Tools, and Resources
CPA2Biz has compiled a Web page titled "AICPA Governmental Guidance, Tools and Resources" which includes CPE opportunities, publications and conferences of interest to auditees and auditors of state and local governments and not-for-profit entities. It is intended to serve as a "one-stop" knowledge resource.
Additional Resources
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HUD Information
Dear Center Members
The Office of Management and Budget (OMB) has informed the Governmental Audit Quality Center (GAQC) that the OMB clearance process for the 2012 OMB Circular A-133 Compliance Supplement (the Supplement) is taking longer than expected. Therefore, OMB has provided a final draft of the Supplement to the GAQC to make publicly available so that auditors can use it to begin planning their 2012 single audits. The purpose of this GAQC Alert is to inform members of the following important matters:
How to access the draft Supplement on the GAQC Web site and more about why OMB is releasing it in draft;
A summary of the key changes to the Supplement;
The expected timing of the final 2012 Supplement;
A reminder to mark your calendars for an upcoming GAQC Web event on the 2012 Supplement to be held June 19, 2012, from 1:00 - 3:00 PM (Eastern Time); and
A reminder about the importance of the Supplement.
How to Access the Draft Supplement on the GAQC Web Site
As noted at the outset of this GAQC Alert, due to a delay in the finalization of the 2012 Supplement, the OMB has provided the GAQC and certain other stakeholder groups with a final draft version of the 2012 Supplement so that auditors can use it to begin planning their 2012 single audit engagements. In providing this draft, OMB asked us to remind auditors that it is still subject to change during the final OMB clearance process. With that said, the draft has previously been vetted with the various federal agencies and other stakeholders and OMB does not expect any significant changes.

The GAQC has established a separate Web page that contains the draft Supplement. This page includes separate links to the individual sections of the Supplement, as well as one link that will allow you to download the entire draft Supplement. Because of the importance of this information, the GAQC is leaving the draft Supplement open to the public. Therefore, feel free to forward this GAQC Alert to other colleagues that may not be GAQC members. Access the draft 2012 Supplement.
Key Changes to the Supplement
The draft Supplement includes the normal types of changes made by OMB each year such as the addition, deletion, and modification of various federal programs. Auditors should review Appendix V, List of Changes for the 2012 Compliance Supplement, to learn more about the type of changes made and then refer to individual sections of the Supplement for updated guidance. A few items of note in the 2012 Supplement are as follows:

Procurement and Suspension and Debarment. Part 3, Compliance Requirements, Requirement I, "Procurement and Suspension and Debarment," was revised to address the relationship between the procurement requirements of 2 CFR part 215, the A-102 Common Rule, and the change in the Federal simplified acquisition threshold. Audit procedure 4(e) suggests that the auditor verify that the federal awarding agency approved procurements exceeding $100,000 when such approval was required. The addition made to this section (immediately following procedure 4(e)) states that the $100,000 threshold for procurements under grants remains unchanged and is not affected by the change in the federal simplified acquisition threshold to $150,000.

FFATA Reporting. Part 3, Requirement L, "Reporting," was revised to clarify subaward reporting under the Federal Funding Accountability and Transparency Act of 2006 (FFATA). This was an area that generated many questions after its addition to the 2011 Supplement. First, OMB added guidance to help auditors better determine when there is a new Federal Assistance Identification Number (FAIN) which is one of the criteria for FFATA applicability. Second, there was previous confusion over the meaning of an obligating action (which is also important to determining FFATA applicability) versus how a subaward is funded. A table in the compliance requirements section has been revised and expanded to clarify when reporting is triggered. Finally, the suggested audit procedures for compliance were expanded to include a new informational section on "good faith effort." It states that in the event that applicable subawards were not properly reported by a recipient pursuant to FFATA, auditors should evaluate compliance with the reporting requirements based on whether a recipient demonstrated a "good faith effort" to comply. It goes on to state that demonstration of a "good faith effort" by a recipient should be evidenced by proper documentation and that auditors are generally not required to report audit findings when there is evidence a recipient demonstrated a "good faith effort." However, auditors are strongly encouraged to remind those charged with governance of the recipient of the entity's responsibilities under FFATA. The new "good faith effort" section also provides guidance on how to consider prior findings or modifications of audit opinions based solely on Part 3L, steps 10 and 11, when performing the risk-based approach for major program determination.

Subrecipient Monitoring. A slight modification was made to Part 3, Requirement M, "Subrecipient Monitoring," in the compliance requirement section that discusses subrecipient risk considerations when performing "during-the-award-monitoring." The previous discussion on this topic was expanded to indicate that the evaluation of subrecipient risk also may take into consideration the extent of federal monitoring of subrecipient entities that also are recipients of prime federal awards.

National Science Foundation Awards. Part 5, Clusters of Programs, was revised to indicate that all awards issued by the National Science Foundation (NSF) meet the definition of Research and Development
(R & D). As such, the guidance states that auditees should identify NSF awards as part of the R & D cluster on the Schedule of Expenditures of Federal Awards and that auditors should test NSF awards for compliance as instructed in Part 5. Additional transitional guidance is provided for situations where certain NSF awards are classified as Sponsored Research for indirect cost purposes.

Recovery Act Major Program Determination. The discussion in Appendix VII, Other OMB Circular A-133 Advisories, relating to the American Recovery and Reinvestment Act of 2009 (Recovery Act) has been revised. The Appendix continues to state that any program or cluster with expenditures of Recovery Act awards would not qualify as a low-risk Type A program unless four specific conditions are met. One of the four conditions (#2 below) was modified as indicated by the bolded wording below:
1. the program or cluster had Recovery Act expenditures in the prior audit period;
2. the program or cluster was audited as a major program in either of the two prior audit periods;
3. the Recovery Act expenditures in the current audit period are less than 20 percent of the total program or cluster expenditures; and
4. the auditor has followed .520(c) and .525 of OMB Circular A-133 and determined that the program or cluster is otherwise low-risk.
In last year's Supplement, #2 above stated that the program or cluster had to have been audited in the prior audit period. It is important to remember that the Type A program or cluster must meet all of the four conditions to be considered low-risk. The other three conditions remain unchanged.

Appendix VII Includes Other Important Guidance. Most of the items included in Appendix VII were issued with the 2010 Supplement but are still in effect. The following presents a summary of the matters included in Appendix VII that auditors should ensure they review:
Effect of Recovery Act awards on major program determination (see above for modification to Type A "low-risk" exception modification).
List of Recovery Act programs not covered by Parts 4, Agency Program Requirements, or Part 5, but that could be subject to a single audit. This listing has been updated in the 2012 Supplement.
List of Recovery Act programs not subject to a single audit.
Guidance emphasizing that federal agencies should not provide single audit submission extensions and that an auditee cannot be considered a low-risk auditee if either of the prior two years' single audits were submitted past the nine month submission deadline. Audit procedures are provided for the auditor to determine whether previous submissions were late.
Guidance for the treatment of large loan and loan guarantee programs in the Type A program determination process. If your clients have loans and loan guarantees this is a "must read" section. It also includes detailed examples to help you understand how loans and loan guarantees should be treated.
Timing of Issuance of Final Supplement
At this time, the draft Supplement is going through a final clearance review process which OMB tells us could take at least three additional weeks. The GAQC will continue to monitor the availability of the final Supplement. As soon as it is issued, we will send a GAQC Alert notification. In the meantime, as stated earlier, members should only use the draft Supplement to assist in planning your 2012 single audits.
Save the Date for an Upcoming GAQC Web Event on the 2012 Supplement
The GAQC is planning to hold a member Web event to cover the 2012 OMB Compliance Supplement, on Tuesday, June 19, 2012, from 1:00PM - 3:00PM (Eastern Time). We are still working out all of the details, but we expect for it to be presented by a panel of GAQC members that have first-hand experience with the Supplement and who have also been involved in related GAQC efforts. Registration information will be provided via a separate GAQC Alert. In the meantime, please save the date.
A Reminder About the 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 used in performing single audits. It provides a key source of information for the purpose of understanding 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 Supplement your immediate attention and ensure that your staff has the information they need to help ensure single audit quality. This GAQC Alert is another important piece of information you might consider sharing with your staff.
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AICPA Governmental Audit Quality Center

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