GAQC Testifies at Senate Hearing on Single Audit Quality
DEAR CENTER MEMBERS
Late yesterday, the Director of the AICPA's Governmental Audit Quality Center (GAQC), Mary Foelster, testified before the Senate Homeland Security and Governmental Affairs Committee's Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security at a hearing titled, Single Audits: Are They Helping to Safeguard Federal Funds? To access the written version of the AICPA testimony, click here. An actual video archive of the hearing will be posted to the Senate subcommittee's Web site in the next several days.
The purpose of the hearing was to focus on the results of the President's Council on Integrity and Efficiency (PCIE) report titled, Report on National Single Audit Sampling Project , and the various roles oversight organizations have in monitoring single audits to ensure federal funds are safeguarded. Other witnesses included representatives from the Office of Management and Budget (OMB), the Government Accountability Office (GAO) and the Department of Education, which coordinated administration of the PCIE report. We informed you about the issuance of the PCIE report (which was issued in June) in GAQC Alert # 52 and in a member-only conference call titled, An Overview of the Results of the National Single Audit Sampling Project.
The interest of the Congress in this area just proves what we at the GAQC have been preaching since our inception 3 years ago. That is, these audits are important to the federal government and in serving the public interest; that all auditors performing this work need to ensure that their single audit practices are such that the audits performed are of the highest quality; and that improvements will be easier to attain if we all work together as a community of firms that are dedicated to this cause.
We appreciate the steps that you, as a member firm, have taken to demonstrate your commitment to governmental audit quality by joining the GAQC. Your firm should take the results of the PCIE study very seriously. As the designated audit quality partner for your firm, we further suggest that you read the PCIE report in its entirety to determine if the audit quality deficiencies cited in the report may impact the planning of your future engagements or your current audit methodologies and documentation practices.
We also ask that you take every opportunity to emphasize the importance of governmental audit quality with other auditors that you know practice in this area, your clients and potential clients.
The following provides you with some details about the hearing.
In our testimony, we emphasize that single audits are important in helping safeguard taxpayer dollars, that poorly performed audits are always unacceptable, and that AICPA will continue its ongoing efforts to enhance the quality of governmental audits. Our testimony also notes the steps AICPA took, on its own initiative, long before the PCIE report was released to improve audit quality, with a strong emphasis on the establishment of the GAQC. As Center members, you should know that we explained to the Senate subcommittee how our member firms demonstrate their commitment to audit quality through adherence to our membership requirements; how our Center operates; and what it provides member firms and non-member firms in terms of information and resources.
We also explain what the AICPA has done since the report was released—including the formation of seven task forces to examine the study's detailed findings and recommendations for the AICPA as follows:
- Sampling/Materiality Issues In A Single Audit Environment
- Internal Control And Compliance Responsibilities In A Single Audit Environment
- Schedule Of Expenditures Federal Awards Reporting Issues
- Reporting Audit Findings In A Single Audit
- Single Audit Training Needs And Continuing Professional Education Evaluation
- Practice Monitoring In A Single Audit Environment
- Compliance Auditing Considerations In Audits Of Governmental Entities And Recipients Of Governmental Financial Assistance.
These task forces have already met and are beginning to forge ahead on developing solutions to the detailed findings in the report. These task forces will also be working with the Auditing Standards Board, OMB and other federal agencies, as necessary, to ensure that all involved in this process are engaged. We will keep you informed, as we go forward, on the progress that each of these task forces is making to address the quality issues noted in the PCIE report and how their work might affect your single audits.
The testimony also includes our views on the other recommendations in the PCIE report. With regard to additional continuing professional education requirements, the AICPA has always been supportive of the existing requirements in Government Auditing Standards and supports single audit-specific training. However, we note that it is difficult to assess whether the recommendation to establish minimum education requirements as a prerequisite for conducting single audits, and the proposed update training, will help to resolve the quality issues cited in the PCIE report. We first need to better understand the extent to which the continuing education of the auditor's reviewed in the study contributed to the deficiencies found or, alternatively, to the acceptable audit classification. With that said, the AICPA appreciates that the PCIE report identifies it as a key organization to assist in developing minimum content requirements and stands ready to work with OMB as it studies this issue further and determines whether and how a CPE requirement should be applied.
Our testimony provides our thoughts on the recommendation in the report to review and enhance processes to address unacceptable audits. The AICPA fully supports a robust federal enforcement process and the federal government's use of all of the tools already at its disposal for addressing unacceptable audits. This includes the current suspension and debarment process, as well as the referral of auditors performing unacceptable audits to licensing agencies and professional bodies for appropriate discipline. Reviewing these tools to make them more efficient and effective seems like an appropriate course of action. With regard to the recommendation to consider the establishment of fines to address unacceptable audits, the AICPA is not certain that this will improve audit quality any more than the tools already at the disposal of the federal agencies. For this reason, we suggest that OMB should first improve the processes already in place before adopting this recommendation. If fines are ultimately sought, defined parameters should be established so that they are not abused or unfairly applied.
Finally, another important point our testimony makes is that significant improvement in the quality of governmental audits will only occur when all the key single audit stakeholder groups—the auditing profession, the procurers of single audit services, and the federal agencies—are involved in the solution. Auditors, of course, are responsible for carrying out a single audit in accordance with professional standards. We state that regardless of whether the deficiencies cited in the PCIE report are technical or substantive, they need to be corrected.
With regard to procurers, the goal should be for all grantees to have robust governance structures that support the benefit of audits, consider the qualifications of a firm during the hiring process, and evaluate the reasonableness of the firm's anticipated hours and fees in relation to the work to be performed. Until the governance structures of these entities are addressed, quality enhancements will be much more difficult to attain.
We also state that to make further strides in improving audit quality, more federal agency support of the single audit process is needed. The AICPA will work cooperatively to explore how enhancements to the OMB Compliance Supplement and other potential activities that might flow from additional federal resources in this area will improve audit quality.
Other Witness Testimony
As noted above, the other witnesses that participated in the hearing were from OMB, GAO, and the Department of Education. All expressed concerns about the quality of single audits and discussed their thoughts on how the quality issues might be solved. You can access the testimony of the other witnesses on the Senate subcommittee's Web site. Just click on the “View PDF” link after each witness name.
Further Study in this Area
This hearing is not the end of the scrutiny on these audits. The GAO has also been asked by the same Senate subcommittee that initiated this hearing to do its own separate study of the single audit process. While the GAO will certainly take into account the results of the PCIE report, its study will likely be broader and include looking at how the Single Audit Act and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are working and whether changes need to be made. The GAO testimony identifies some of the questions they believe need to be considered in addition to the recommendations cited in the PCIE report as follows:
- What types of simplified alternatives exist for meeting the accountability objectives of the Single Audit Act for the smallest audits and what would the appropriate cutoff be for a less-complex audit requirement?
- Is the current federal oversight structure for single audits adequate and consistent across federal agencies?
- What alternative federal oversight structures could improve overall accountability and oversight in the single audit process?
- Are federal oversight processes adequate and are sufficient resources being dedicated to oversight of single audits?
- What role can the auditing profession play in increasing single audit quality?
- Do the specific requirements in OMB Circular No. A-133 and the Single Audit Act need updating?
We look forward to continuing our dialogue with you on future developments that come about as a result of these recent activities, including the activities of the new AICPA task forces, and providing you with additional audit quality resources and tools to help you in your practices.
Amanda Nelson, CPA
GAQC Executive Committee
Mary M. Foelster, CPA
AICPA Governmental Auditing and Accounting
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As a member of the Center, your firm will receive periodic updates on important developments related to governmental audits, as well as the activities of the Center. To stay abreast of these and other relevant events, please visit the Center Web site at gaqc.aicpa.org. Also, we welcome any suggestions or questions. Please send them by e-mail to GAQC@aicpa.org.
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