The Single Audit Act Amendments of 1996 (Single Audit Act) were enacted into law in order to:
- Promote sound financial management, including effective internal controls, with respect to Federal awards administered by non-Federal entities;
- Establish uniform requirements for audits of Federal awards administered by non-Federal entities;
- Promote the efficient and effective use of audit resources;
- Reduce burdens on State and local governments, Indian tribes, and nonprofit organizations; and
- Ensure the Federal departments and agencies to the maximum extent practicable, rely upon and use the audit work done. 1
In February, 2013, the Office of Management and Budget (OMB) published a proposed reform to improve and make changes to the way it administers federal grants and the oversight of how these grants are monitored and audited, which total approximately $600 billion annually.
The proposed reform, entitled “Proposed Uniform Guidance: Cost Principals, Audits, and Administrative Requirements for Federal Awards” and dated February 1, 2013, was proposed in order to increase accountability and transparency of Federal funding while minimizing the unnecessary and duplicative requirements and improving policies to help protect against waste, fraud and abuse. The proposal also provides recommendations to streamline all OMB guidance on Federal grants from eight documents to one and to limit the types of compliance requirements in the supplement from thirteen to six key compliance requirements. There are four key reform ideas outlined in the proposed rule. They relate to reforms to administrative requirements, reforms to cost principles, reforms to audit requirements and additional suggestions outside the guidance reform.
Certain key highlights related to reforms to audit requirements are listed below:
- Audit Threshold – The audit threshold would be increased from $500,000 to $750,000. With this increase, there would be relief to approximately 5,000 non-Federal entities that spend less than $750,000 in a given year, but the coverage of Federal awards through single audits would be approximately 99% of Federal funds.
- Major Program Determination -Currently, a threshold is calculated to determine which programs are designated “Type A” versus “Type B”. The auditor then prescribes a process to assess program risk to determine which programs will be audited as a major program.
- Under the proposal, the minimum threshold for Type A programs would increase from $300,000 to $500,000.
- There would be a refocus on the criteria for Type A programs to qualify as high-risk.
- There would be a reduction in the number of high risk Type B programs that had to be tested depending on the number of low risk Type A programs. This would decrease from one half to one fourth the number of low risk Type A programs.
- The calculation to determine small Type B programs would be simplified.
- The minimum coverage required under the percentage-of-coverage rule would change from 50% to 40% for a regular auditee and from 25% to 20% for an auditee that qualifies as a low risk auditee.
- Questioned Costs – The minimum threshold for questioned costs would increase from $10,000 to $25,000. The purpose of this change is to be able to focus on audit findings that present the greatest risks.
- Streamlining Compliance Requirements – The OMB would like to limit the types of compliance requirements in the supplement to focus on key requirements that if violated, would result in improper payments, fraud, waste, or abuse. Those compliance requirements are listed below:
- A. Activities Allowed or Unallowed and B. Allowable Costs/Cost Principles – would be combined as would H. Period of Availability of Federal Funds and a part of G. Matching.
- C. Cash Management
- E. Eligibility
- L. Reporting
- M. Subrecipient Monitoring
- N. Special Tests and Provisions 2
This briefing is not intended to cover all objectives proposed under the grant reform proposal. The complete proposal can be found at www.federalregister.gov.
Currently, there is no proposed effective date for the proposed changes. Bennett Thrasher will continue to monitor potential changes and the latest practices within the not-for-profit industry.
For more information on the proposed update to the Single Audit Act and other not-for-profit industry questions, please contact Anton Hayward or call 770.396.2200.
1 SINGLE AUDIT ACT AMENDMENTS OF 1996 – PUBLIC LAW 104-156-JULY 5, 1996
2 Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements (Including Single Audit Act) – A Proposed Rule by the Management and Budget Office on 02/01/2013