GAQC Alert No. 311

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OMB Releases 2016 Compliance Supplement
AICPA
August 1, 2016
GAQC Alert #311
In This Alert
Accessing the Supplement and Effective Date
Important Aspects of the 2016 Supplement
Changes in the 2016 Supplement
GAQC 2016 Supplement Web Event
A Final Note
OMB Releases Webcast
An archived Webcast, Uniform Guidance: Promising Practices, has been released by OMB. It includes discussions with federal, state, and other representatives on topics such as contract versus subaward determinations, subrecipient monitoring, personnel services, and indirect costs.
AICPA Government Conference
Register now for in-person or online attendance at the AICPA Governmental Accounting and Auditing Update Conference to be held on August 8-9, 2016, in Washington, DC. You can use the GAQC discount code located here for a $50 savings.
Additional Resources
GAQC Alerts

Archived GAQC Web Events

Audit Practice Aids and Tools

HUD Information
Dear Center Members
The Office of Management (OMB) released the 2016 2 CFR 200, Appendix XI, Compliance Supplement (the Supplement). This edition of the Supplement will be used to perform your single audits under OMB's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR 200 (Uniform Guidance). After reading this GAQC Alert you will be aware of the following important matters:
How to access the 2016 Supplement and its effective date;
A reminder about important aspects of the 2016 Supplement and its use;
Key changes made to the 2016 Supplement; and
Access information for an archived Governmental Audit Quality Center (GAQC) Web event on the 2016 Supplement.
Accessing the Supplement and Effective Date
Access the 2016 Supplement directly on the OMB Grants Management Circular page. At this time OMB has posted the Supplement in one pdf file. OMB has informed us that the files will be broken down into parts and posted later this week. The Supplement is effective for audits of fiscal years beginning after June 30, 2015, and it supersedes the 2015 Supplement.
Important Aspects of the 2016 Supplement
The audit requirements of the Uniform Guidance (contained in Subpart F, "Audit Requirements") are effective for audits of fiscal years beginning on or after December 26, 2014. The 2016 Supplement is a critical tool for auditors performing audits under the Uniform Guidance audit requirements. Part 3, Compliance Requirements, is a key part of the Supplement for you to understand. It continues to be broken down into two parts to facilitate your compliance testing of older and newer awards. You will use Part 3.1 to test federal awards made prior to December 26, 2014, and Part 3.2 to test federal awards subject to the Uniform Guidance (i.e., new awards made on or after December 26, 2014, or funding increments made on or after that date). Keep in mind that you may be using both sections to test awards expended for certain major programs. Additionally, even though your compliance testing may include older awards subject to pre-Uniform Guidance requirements, all audits performed using the 2016 Supplement will be performed using the Uniform Guidance audit requirements.
Key Changes in the 2016 Supplement
There are a number of changes made in the 2016 Supplement. There are the normal types of changes made by OMB each year such as the addition, deletion, and modification of various federal programs, as well as several broader changes. You should review Appendix V, List of Changes for the 2016 Compliance Supplement, to learn more about the type of changes made and the specific programmatic changes by Catalog of Federal Domestic Assistance (CFDA) number. You should also carefully review Appendix VII, Other Audit Advisories, to understand the latest OMB announcements that may be relevant to your 2016 single audits.

The following summarizes some of the more significant changes to the Supplement that you should be familiar with. However, you should review the Supplement in its entirety to gain a full understanding of its contents.
Global Changes. OMB removed numerous references to OMB Circular A-133 since all audits conducted using the 2016 Supplement will be performed under the Uniform Guidance audit requirements. OMB also reviewed all instances of "must" and "should" to ensure consistency in usage and clarity of intent. This review resulted in some changes throughout the Supplement. Remember that in both the Uniform Guidance and the Supplement, the use of "must" equates to a requirement and the use of "should" equates to a best practice or recommended approach. As has always been the case with the Supplement, suggested audit procedures are preceded by "should." Auditors must continue to judge whether the suggested audit procedures are sufficient to achieve the stated audit objectives or whether alternative procedures are needed.
Part 2, Matrix of Compliance Requirements. Throughout the matrix, OMB changed the shaded cells to use "N" instead of shading to indicate applicability. So, a cell containing an "N" now indicates that a program normally does not have activity subject to the compliance requirement or the compliance requirement would generally not have a direct and material effect on the program. Note that shaded cells remain for the reserved "D" and "K" columns. Additionally, several "Y" responses have been revised to "N" and vice versa so you should carefully review the matrix to ensure you understand any changes made.

OMB also made the usual changes to the matrix to add and remove programs and to make it consistent with the Table of Contents and Part 4, Agency Program Requirements. Finally, OMB added the applicable row from Part 2 to each program/cluster supplement in Part 4 and Part 5, Clusters of Programs, to help ensure auditors understand and use the various Supplement parts together.
Part 3, Introduction. OMB added a discussion of the effect of Council on Financial Assistance Reform (COFAR) Frequently Asked Questions (FAQs) that are published after the 2016 Supplement is issued. It notes that any FAQs issued or updated after September 2015 will be available at the COFAR website and should be considered in the single audit work plan and reviews, as appropriate for the subject matter and the audit period.
Part 3.1. In I, "Procurement and Suspension and Debarment," OMB added a reference to the System for Award Management and clarified the note under audit procedure 4(e) regarding the procedure to verify that the federal awarding agency approved procurements exceeding $100,000 when such approval was required.
Part 3.2. OMB clarified or corrected language in several places within B, "Allowable Costs/Cost Principles." In I, "Procurement and Suspension and Debarment," OMB updated the COFAR FAQ discussion to reflect the two full fiscal year grace period for procurement implementation. Additionally, for the procedure to test a sample of procurements to verify whether the appropriate procurement method was used, OMB added the Federal Acquisition Regulation location where the current micro-purchase and simplified acquisition thresholds may be found (instead of providing a specific number in the Supplement as has been done in the past).
Parts 4 and 5. OMB added and deleted programs and made necessary changes to programs and clusters due to regulatory and other changes such as the expiration of certain American Recovery and Reinvestment Act (ARRA) programs. Additionally, certain Department of Education compliance requirements in the Student Financial Assistance cluster were updated due to regulatory and other changes and the Research and Development (R&D) cluster was clarified and changed to conform certain language to the Uniform Guidance.
Part 6, Internal Control. OMB added Part 6 back to the Supplement. The revised Part 6 provides an overview and the objectives of internal control and reiterates that internal controls "should" (i.e., best practice or recommended approach) be in compliance with Government Accountability Office "Standards for Internal Control in the Federal Government" (Green Book) or the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) "Internal Control Integrated Framework." Part 6 also describes the characteristics of internal control relating to each of the five components of internal control and highlights the relationship between those characteristics and the 17 principles of internal control. OMB states that Part 6 may assist the auditor in planning and performing the audit but auditors are cautioned that it is not a checklist of required internal control characteristics. Finally, Part 6 emphasizes that nonfederal entities will need to exercise judgment in determining the most appropriate and cost effective internal control in a given environment or circumstance, to provide reasonable assurance for compliance with federal program requirements.
Appendix II, Federal Agency Codification of Governmentwide Requirements and Guidance for Grants and Cooperative Agreements. OMB updated this Appendix to include the dates of each federal agency's issuance of final rules or regulatory actions to implement the Uniform Guidance. This Appendix may be useful to auditors in accessing implementation rules for the purpose of identifying any agency exceptions to the Uniform Guidance. However, auditors should be aware that this Appendix is only updated annually and may not be up-to-date. The GAQC has posted a tool on its Web site titled, Status of Federal Agency Adoption, which provides a link to each agency's regulation that may also be useful to auditors. We will update this tool throughout the year as we become aware of any changes. See related discussion below on federal agency exceptions
Appendix III, Federal Agency Single Audit, Key Management Liaison, and Program Contacts. OMB added each agency single audit key management liaison to this contact listing. The other responsible single audit offices/officials and program contacts were also updated and language was added to help distinguish the roles of the different type of contacts listed.
Appendix VI, Program-Specific Audit Guides. OMB deleted several guides and also added several Department of Education guides.
Appendix VII, Other Audit Advisories. OMB made several substantive changes to this Appendix including the following:

o Effect of Implementation of the Uniform Guidance on Major Program Determination. This new guidance was added by OMB in the final stages of clearance. Therefore, it was not covered in the previously held GAQC Web event discussed below and has not been covered in a GAQC Alert. The guidance addresses a transition issue that may occur for some nonfederal entities in the third year after implementing the Uniform Guidance. Due to the change in risk assessment criteria for Type A programs under the Uniform Guidance, there may be an increase in the number of low-risk Type A programs in the first and second year of implementing the Uniform Guidance audit requirements for some auditees. In those scenarios, the number of major programs that will need to be tested by the auditor may significantly increase in the third year (due to the two-year lookback rule). To avoid this spike in major programs, the guidance indicates that auditors may consider auditing some low-risk Type A programs as additional major programs in the first and second years of implementation. However, there are several caveats provided in the guidance that should be carefully considered by auditors. First, and very importantly, any low-risk Type A programs selected by the auditor for early major program treatment would be in addition to major programs required to be tested using the normal 4-step approach described in section 2 CFR 200.518 of the Uniform Guidance. Second, an "additional" low-risk Type A program would not be permitted to be audited more than once in the first three years of implementing the Uniform Guidance audit requirements. Third, there would be no change to the application of any steps in the major program determination process. To be clear, use of this guidance is optional and auditors are not required to apply it to their single audits. Instead, auditors may wish to consider whether to apply the guidance based on the facts and circumstances of each engagement.
o Determining Low-Risk Auditee Status. OMB revised the discussion regarding the due date for audit reports and its effect on low-risk auditee status to address the Federal Audit Clearinghouse shutdown during 2015 and the related extensions provided.
o Federal Agency Exceptions. Keep in mind that certain agency exceptions to the Uniform Guidance may affect auditee compliance requirements. OMB did not update the listing of federal agency exceptions in Appendix VII to encompass any additional exceptions arising from agencies' final rulemaking. Instead, a note indicates that the agency differences identified are based on the agencies' interim final rulemaking and a suggestion is made that the listing of agency implementation regulations in Appendix II can be used to determine any other approved agency exceptions. See related discussion on Appendix II above. Auditors should make reasonable efforts to identify agency differences by reviewing the exception information in the Supplement and reviewing agency regulations for more detail if needed.
o Effect of Compliance Requirement Changes. OMB revised the discussion of the effect of the removal or addition of compliance requirements in a program or cluster to make it more generic and relevant to all requirements. The similar discussion in the 2015 Supplement was more specific to the removal of the Davis Bacon Act and Relocation and Real Property Assistance compliance requirements.
o Removal of Loan Safe Harbor Guidance. OMB removed the discussion of safe harbor coverage for large loan and loan guarantee programs. That guidance was previously included in the Supplement since OMB Circular A-133 did not include specific guidance on the meaning and treatment of large loan and loan guarantees. The guidance is no longer necessary since the Uniform Guidance includes detailed requirements for determining large loan and loan guarantees and the effect on major program determination.
GAQC 2016 Supplement Web Event
Just reading the above summary of changes will not give you a complete understanding of what you need to know about the 2016 Supplement. You will need to closely review the Supplement. We also recommend that if you missed the GAQC's annual Web event discussing the changes to the Supplement that you listen to the recently posted archive titled, 2016 Compliance Supplement and Single Audit Update. The event was presented by a panel of GAQC members with first-hand experience with the Supplement and who were also been involved in related GAQC efforts during the Supplement's development. While the event was based on a final draft of the Supplement and may not include discussion of every matter discussed above, it will still be very useful in understanding the changes to the Supplement. There is no continuing professional education (CPE) for listening to the archive. Access the no-CPE archive. If you are interested in getting CPE, we plan to hold a CPE rebroadcast of this event on September 9, 2016, from 1:00PM - 3:00PM (Eastern Time). Stay tuned for a GAQC Alert with registration information.
A Final Note
In December 2015, OMB provided the GAQC with an opportunity to comment on a draft of the 2016 Supplement. The GAQC's comments to OMB were comprehensive and based on feedback received from numerous members. As a result, the final Supplement is improved from the original draft we were provided. Thanks to all members that assisted with this advocacy effort!

If you have any questions about the Supplement, identify clarifications that you think are needed, or have any other feedback, please e-mail us at gaqc@aicpa.org so that we are aware of any issues or problems that our members are facing. We will communicate all feedback received to OMB.

Sincerely,

AICPA Governmental Audit Quality Center
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