The American Institute of CPAs Governmental Audit Quality Center issued an April 30, 2012 comment letter to the Office of Management and Budget about potential revisions to rules governing single audits. Single audits (sometimes also referred to as OMB Circular A-133 audits) are audits of federal awards expended by states, local governments and not-for-profit organizations. The GAQC identified several matters it believes OMB needs to consider before implementing a potential threshold increase for single audits and described concerns about the introduction of a new “limited scope” single audit. Numerous other recommendations for improvement to single audits were also provided.
The Office of Management and Budget (OMB) Advance Notice, Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements (including Single Audit Act) is a precursor to future proposed regulatory changes and discusses ideas being considered by OMB for potential changes to its single audit rules.
Ideas discussed in the Advance Notice include an increase in the threshold for a single audit to $1 million (from today’s threshold of $500,000), the introduction of a new “limited scope” single audit for entities expending between $1 million and $3 million in federal funds, and a required “full” single audit for entities expending over $3 million in federal funds. A more detailed summary of the ideas discussed in the Advance Notice can be found in GAQC Alert #189.
The GAQC comment letter emphasizes that single audits are an effective mechanism in assisting federal agencies in their monitoring and oversight role. The letter also expresses support for the overall goals identified in the Advance Notice of removing unnecessary and overly burdensome requirements and enabling resources to be focused on those activities that are most effective at reducing payment errors and eliminating waste, fraud, and abuse.
With regard to increasing the single audit threshold, the letter suggests that there are several significant questions surrounding such an increase that need to be considered by OMB before making a final threshold determination. Regarding the idea for a “limited scope” single audit, the letter describes multiple operational issues with such an approach that would have to be overcome and states that it will likely be difficult for users of single audit reports to distinguish a limited scope single audit from a full single audit. Certain of the ideas discussed for full single audits (e.g., federal agency materiality determinations and prescribed sample sizes for certain compliance requirements) are also identified as being problematic because they would not be consistent with an auditor's risk-based methodology for the purpose of opining on compliance.
Finally, the letter provides a recommendation for future single audits that the GAQC believes would be more effective than certain of the ideas described in the Advance Notice. Because the Advance Notice is a precursor to future regulatory changes, the letter provides OMB with numerous other recommendations for consideration as it moves forward. Members that are either subject to or perform single audits are encouraged to review the GAQC letter.