GAQC Member Conference Call The New GAQC Schedule of Expenditures of Federal Awards Practice Aids and Other Related Iss

1. GAQC Member Conference CallThe New GAQC Schedule of Expenditures of Federal Awards Practice Aids and Other Related Issues October 22, 2009 Corey Arvizu Heinfeld, Meech & Co. Barbara Cevallos PricewaterhouseCoopers LLP

2. TOPICS to be COVERED Context of the SEFA Background on the Development of the Practice Aids GAQC Developed Practice Aids: Auditor Practice Aid: Illustrative Audit Program Auditor & Auditee Practice Aid: Disclosure Checklist Auditee Practice Aid: Worksheet for Identifying Federal Program Information Impact of the American Recovery and Reinvestment Act on SEFA Reporting

3. Context of the SEFA

4. Context of the SEFA Defined in OMB Circular A-133 _.310(b) Auditee’s responsibility _.300(d) Auditor’s responsibility _.505(a) Opinion (or disclaimer of opinion) as to whether the SEFA is presented fairly in all material respects in relationtothe financial statements taken as whole. Considered supplementary information

5. Context of the SEFA – Auditee Responsibility SEFA is the primary responsibility of the auditee Encourage your clients to: Contact pass-through awarding entities early in the planning process Understand the importance of the SEFA Consider control deficiencies

6. Context of the SEFA - Opinion In relation to opinion AU 551 Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents (Undergoing revision) Opinion is based on the same materiality as that of the financial statements Dating concurrent with financial statement opinion

7. Context of the SEFA – Compliance Audit Objectives SEFA serves as the primary basis for major program determination – thus making the accuracy & completeness of the SEFA a critical factor Internal control over compliance procedures require the auditor to assess the auditee’s controls over the accuracy and completeness of the expenditure amounts & accuracy of CFDA numbers Compliance procedures should be performed to determine whether the SEFA is complete, accurate and contains all required elements

8. Background on the development of the practice aids

9. Background Understand Quality Control Issues Associated with the SEFA AICPA Response

10. QC Issues Associated with the SEFA PCIE Report Issued in June 2007 Identified quality issues in many aspects of single audit engagements reviewed For more information: Listen to the GAQC archived Webcast “An Overview of the Results of the National Single Audit Sampling Project” Read the PCIE Report available at the following site: http://ignet.gov/pande/audit/NatSamProjRptFINAL2.pdf Read the October 25, 2007 testimony presented at a Senate hearing on Single Audit Quality http://hsgac.senate.gov

11. QC Issues Associated with the SEFA Audit documentation did not contain evidence that audit programs were used for auditing the SEFA Omission of required elements of the SEFA Audit documentation did not contain evidence that audit work relating to the SEFA was adequately performed Required opinionon the SEFA was omitted

12. QC Issues - Audit Programs • Expectation of use in accordance with audit standards • Include adequate procedures (which go beyond those required for “in-relation” opinion) • Consistent application of audit procedures on SEFA for all audits and all teams • Help address other SEFA quality control issues noted

13. QC Issues – Required Elements • Issue noted in over 45% of audits reviewed • Clustering and correct CFDA numbers critical • Use of review checklist for both auditors and auditees • Correct SEFA content important for: • Determining major federal programs • Determining compliance requirements of major programs • Presenting required information for SEFA users

14. QC Issues - Evidence • Specifically identify audit procedures applied to the SEFA • Procedures should identify assertions tested, in particular completeness, accuracy, and classification • Utilization of audit program helps ensure adequate evidence • Notes to the SEFA are a required element of the reporting package

15. QC Issues - Opinion Omission • Educate staff and partners working on single audits about the options on where to include the SEFA in relation to opinion • Consider developing a template to illustrate the requirements of an A-133 report • If your firm uses an audit completion checklist to assist in performing final documentation and report reviews, add a step to review the in relation to opinion on the SEFA before issuance

16. AICPA Response • Formation of the SEFA Reporting Issues Task Force • Revisions made to AICPA GAS/A-133 Peer Review Checklists based on the findings • Interaction with the Federal community to keep abreast of their responses

17. SEFA Reporting Issues Task Force • 7 member task force with representatives from: • GAQC member firms • Diverse firm representation • Practice Aids reviewed by: • State Auditor • AICPA Audit & Attest Standards staff • OMB task force • Practice Aids are considered an Other Auditing Publication

18. Questions

19. Gaqc developed practice aids

20. GAQC Practice Aids • Auditor Practice Aids • Illustrative Audit Program for the SEFA • Disclosure Checklist for the SEFA • Auditee Practice Aids • Worksheet for Identifying Federal Program Information • Disclosure Checklist for the SEFA • Practice aids are available through the GAQC website at: GAQC Home > Resources > Research Tools and Aids

21. Illustrative Audit Program for the SEFA • Assertions related to the SEFA • CM: Completeness • OC: Occurrence • AC: Accuracy • CT: Cutoff • CU: Classification and Understandability

22. Illustrative Audit Program for the SEFA • Objectives of the Audit Program • To determine whether the schedule of expenditures of federal awards (schedule) is fairly stated in all material respects in relation to the basic financial statements. • To determine whether the schedule provides an appropriate basis for determining major programs.

23. In Relation To Procedures • AU 550, Other Information in Documents Containing Audited Financial Statements • Provides guidance on the auditor’s consideration of supplementary information (SI), including auditor responsibilities and related procedures • Read the SI and consider whether such information, or the manner of its presentation, is materially inconsistent with information, or the manner of its presentation, appearing in the financial statements.

24. In Relation To Procedures • AU 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents • Provides guidance on the form and content of the reporting when the auditor expresses an “in relation to” opinion. • AU 550 and AU 551 are being revised • Comments were due May 2009 • ASB currently deliberating • GAQC will make its members aware when issued and will make any appropriate modifications needed to the audit program

25. In Relation To Procedures • Inquire of management whether the schedule was prepared in accordance with Circular A-133. • Obtain an understanding about the methods of preparing the information, including whether the form and content complies with Circular A-133. • Compare and reconcile information to the underlying accounting and other records used in preparing the financial statements or to the financial statements themselves.

26. In Relation To Procedures • Inquire of management whether there were any significant assumptions or interpretations underlying the measurement of presentation of the information. • Evaluate the appropriateness and completeness of the information, considering procedures and other knowledge obtained during the audit of the financial statements.

27. In Relation To Procedures • Obtain the following management representations • that it acknowledges its responsibility for the information; • that the form and content of the schedule is in accordance with Circular A-133 §310.b; • that the methods of measurement or presentation have not changed from those used in the prior period or, if the methods of measurement have changed, the reasons for such changes; and • as to any significant assumptions underlying the measurement or presentation of the schedule.

28. Procedures Related to A-133 Requirements • Obtain an understanding of internal control over the preparation of the schedule. • Determine whether the period covered by the schedule is the same as that covered by the financial statements. • Determine whether the clusters reported in the schedule are correct by comparison to Part 5 of the Compliance Supplement

29. Procedures Related to A-133 Requirements • Test completeness of the schedule • Test accuracy of CFDA numbers and names of awarding agencies by comparison to various source and other documents

30. Procedures Related to A-133 Requirements • Determine whether the schedule: • Properly identifies federal awards from pass-through entities and the federal portion of multi-funded awards, and assess potential finding if client is unable to determine these amounts. • Properly includes direct and indirect costs, and excludes cost sharing or matching amounts. • Presents the minimum data elements required by A-133, section 310(b). • Presents in the notes to the schedule the significant accounting policies used and basis of presentation.

31. Procedures Related to A-133 Requirements • Determine whether the schedule (continued): • Appropriately measures certain specific items, such as loans and loan guarantees, endowment funds, and noncash assistance, as provided in A-133, section 205(b) through (j). • Uses measurements or presentations that differ from those in the prior period. (If so, evaluate the nature and reasonableness of the changes.) • Has any significant assumptions or interpretations underlying the measurements or presentations. (If so, evaluate the appropriateness of those assumptions and interpretations.)

32. Procedures Related to A-133 Requirements • In addition to the other management representations noted – obtain the following: • that it is management’s responsibility for understanding and complying with the compliance requirements related to the preparation of the schedule; • that management has identified all of its government programs and related activities subject to Circular A-133 and has included expenditures made during the period being audited for all awards provided by federal agencies in the form of grants, federal cost-reimbursement contracts loans, loan guarantees, property (including donated surplus property), cooperative agreements, interest subsidies, insurance, food commodities, direct appropriations, and other direct assistance;

33. Procedures Related to A-133 Requirements • In addition to the other management representations noted – obtain the following: • that management has made available all contracts and grant agreements, including amendments, if any, and any other correspondence that have taken place with federal agencies or pass-through entities related to federal programs; • acknowledges management’s responsibility for establishing and maintaining controls that provide reasonable assurance that the entity manages government programs in compliance requirements.

34. Procedures Related to A-133 Requirements • Evaluate identified control weaknesses pertaining to the auditee’s complete and accurate schedule and determine whether such deficiencies individually or in combination, are significant deficiencies or material weaknesses relating to internal control over financial reporting, internal control over compliance or both. • Currently, apply SAS 112 definitions • Consider the likelihood/magnitude of an error compared to financial statement AND A-133 materiality • Consider any linkage between the process used to compile the SEFA and recording of federal grant transactions

35. Questions

36. Disclosure Checklist for the SEFA • Designed using the requirements of A-133 § 310.b • Emphasize to clients that the preparation of the SEFA is an auditee responsibility as defined by A-133 § 300.d • Communicate with clients who have difficulty preparing the SEFA early in the planning process • Auditor & Auditee practice aids are identical in terms of listing the required elements

37. Disclosure Checklist for the SEFA • Highlights: • If a CFDA number is not available, include the agency prefix and another identifying number and the name of the program • Clusters – must list individual awards • Include, if applicable, awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity

38. Disclosure Checklist for the SEFA • Highlights • Include non-cash assistance • Inclusion of non-federal awards in the SEFA • Clearly segregated • Designated as non-federal • Modify the title of the SEFA to indicate their inclusion

39. Worksheet for Identifying Federal Program Information • Task Force wanted to emphasize that the preparation of the SEFA is an auditee responsibility • Developed a tool to share with clients to help them compile information on eachof their grants

40. Worksheet for Identifying Federal Program Information • Help your clients understand • CFDA numbers and their purpose • Role of pass-through entities • Noncash assistance • Advance vs. reimbursement cash draws • OMB Compliance Supplement • Types of compliance requirements • How to determine applicability to each grant • Importance of all of this information on administering grants • Potential impact on their report for failure to understand or apply (findings)

41. Other Tools & Resources • Alert #126 Release of SEFA Practice Aids • Forward to clients or use to format your own communication • GAQC Member-only conference calls • Auditee Preparation for Single Audits(open call) • SEFA Reporting Improvements & Suggested Procedures (discusses many deficiencies in detail)

42. Other Tools & Resources • AICPA/CPA2BIZ (http://www.cpa2biz.com/) • Government Auditing Standards & Circular A-133 Auditing & Accounting Guide • Government Auditing Standards & Circular A-133 Audit Risk Alert • OMB (http://www.whitehouse.gov/omb/circulars/index.html) • Circular A-133 • Current Year’s Compliance Supplement • GAO (http://www.gao.gov/govaud/ybk01.htm#contacts) • 2007 Yellow Book: Government Auditing Standards

43. Impact of the American recovery and reinvestment act on sefa reporting

44. Recovery Act American Recovery and Reinvestment Act of 2009 Some June 30, 2009, audits impacted; bigger impact likely on later 2009 year-ends and into 2010 and 2011 Accountability and Transparency QCRs built into the OMB guidance – results to be placed on Recovery.gov Single audit reporting to be made available on the Internet Auditees significantly affected by Section 1512 reporting; auditor responsibility going forward? Non-static Compliance Supplement and other OMB guidance issued on continual basis Changes to major program determination process Watch GAQC communications and Web site for updates

45. Recovery Act – OMB Guidance OMB Guidance on Recovery Act Directly Relating to SEFA Requirements: March 2009 OMB Compliance Supplement and Appendix VII August 2009 OMB Compliance Supplement Addendum 1 (effective for June 30, 2009 audits) Both available through the following link: http://www.whitehouse.gov/omb/grants_circulars/

46. Recovery Act – Compliance Supplement Appendix VII • Effects on SEFA • Auditors Should Be Alert for Recovery Act Awards.  Auditors should be alert to determine whether auditees (both recipients and subrecipients) have properly identified Recovery Act awards • Impact on CFDA Numbers.  Federal agencies are required to specifically identify Recovery Act awards, regardless of whether the funding is provided under a new or existing CFDA number  • Cluster Guidance to be Updated in Addendums.  OMB states that it will need to update the clustering guidance in Part 5 of the Compliance Supplement since many of the Recovery Act awards will have new CFDA numbers

47. Recovery Act – Compliance Supplement Appendix VII • Effects on SEFA • SEFAand Data Collection Form (DCF) Need to Identify Recovery Act Expenditures Separately • Specific Recovery Act requirements are being included in terms and conditions for Recovery Act awards to ensure separate identification in both the SEFA and the DCF.  This separate identification should also include the R&D cluster regardless of the accommodation made in section .310(b)(1) of Circular A-133. 

48. Recovery Act – Addendum 1 to CS • Effects on SEFA • Addition of Special Tests & Provisions for Awards with ARRA Funding • R2: Separate presentation on the SEFA and DCF of ARRA awards • Note that these are additive requirements (current requirements in A-133 still stand)

49. Recovery Act • Research & Development Cluster Considerations • New CFDA # versus existing CFDA # • ARRA in title • Reporting by agency

50. Recovery Act (partial SEFA)