OMB A-133 Audits

Region 9 July 20, 2012

Why are programs audited?

Each year, the Federal Government spends billions of dollars on Federal awards to state and local government entities and non-profit organizations. To ensure that these monies are being used for their intended purpose, the Single Audit Act, as amended, requires each reporting entity that expends $500,000 or more in Federal awards in a year to obtain an annual single audit. The audit covers both the reporting entitys financial statements and Federal awards.

2007 Report on Single Audit Sampling Project

Of 208 randomly selected audits:

115 (48.6%) were acceptable and could be relied on 30 (16.0%) had significant deficiencies and were of limited reliability 63 (35.4%) were unacceptable and could not be relied on Reliability went up with the size of the grantee

2007 Report on Single Audit Sampling Project

Most prevalent deficiencies included:

Not documenting internal controls Not testing internal controls

Not testing compliance requirements

Incorrect identification of major programs as having been audited Caused by lack of due professional care

2007 Report on Single Audit Sampling Project

Recommendations:

Revise and improve single audit standards, criteria and guidance

Establish minimum requirements for training on performing single audits Review and enhance processes to address unacceptable single audits

Sample Audit Report Section

Audit Terms (Type of Audit Report)

Unqualified opinion: The grantee has complied with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program. Qualified opinion: The financial statements as a whole are presented in conformity with generally accepted accounting principles (GAAP), with the exceptions noted. Adverse opinion: The financial statements as a whole are not in conformity with GAAP. Disclaimer of opinion: The auditor is unable to express an opinion as to the presentation of financial statements in conformity with GAAP.

Audit Terms (Financial Statements)

Going concern: There is a reasonable probability that the grantee may not continue in operation beyond its current funding period. Material weakness: A deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented, or detected and corrected on a timely basis. Significant deficiency: A deficiency in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Material noncompliance: The grantee is not in compliance with laws, rules, regulations or contracts at a

Going Concern in DRS

An agency has been determined within the twelve months preceding the responsible HHS official's review under 1307.7 of this part to be at risk of failing to continue functioning as a going concern. The final determination is made by the responsible HHS official based on a review of the findings and opinions of an audit conducted in accordance with section 647 of the Act; an audit, review or investigation by a State agency; a review by the National External Audit Review (NEAR) Center; or an audit, investigation or inspection by the Department of Health and Human Services Office of Inspector General.

Key Risk Factors and Red Flags

Increased borrowing, especially short term Inability to pay debts as they come due Assets are valued at less than liabilities Prior audit findings Turnover of key fiscal staff Inadequate monitoring of sub-recipients (delegates) Asset values are going down without explanation Mortgage payments with no associated permission