Governor’s Grants Office

1. OMB Circular A-133Rules To The Game Audits of States, Local Governments and UniversitiesPresented by Alicia Foster, Graylin Smith and Donna Dancy for Governor’s Grants Office Governor’s Grants Office

2. Presenters Alicia Foster, Audit Director Abrams, Foster, Noles & Williams, PA 410-433-6830 Graylin Smith, Managing Partner SB & Company 410-584-1401

3. Presenters • Donna Dancy • Director, Internal Audit Services • Maryland Department of the Environment • 410-537-3429

4. Presentation Objectives • Recap OMB A-133 Circular Overview - Donna Dancy • Clarify why we care about OMB A-133 compliance – Donna Dancy • Define key terms and roles & responsibilities – Donna Dancy

5. Presentation Objectives • Explain internal controls reviewed during the A-133 audit and the internal control questionnaire - Graylin Smith • Purpose, Process, Outcomes : An Auditor’s Prospective - Alicia Foster

6. LET’S RECAP

7. Recap A-133 Overview • Single Audit Act was enacted in 1984 • Annual audit required for Non-Federal Entities that receive Federal funds • Shows the “whole picture”

8. Recap A-133 Overview • Single Audit is two-fold - Financial and Compliance • Uses a risk-based audit approach • Cost effective way to obtain audits because one audit is conducted instead of multiple audits of individual programs

9. Recap A-133 Overview • OMB Circular A-133 was issued in 1990 • Extended Single Audit process to universities and non-profits • Set standards for consistency and uniformity for audits. Provided specific policy, procedures and criteria

10. Federal Circulars

11. Where to Find the Rules • OMB Circular A-133 - http://www.whitehouse.gov/omb/circulars/ a133/a133.html • Single Audit Act - http://thomas.loc.gov/cgi-bin/query/ z?c104:S.1579.ENR: • CFR - http://gpoaccess.gov/cfr/index.html

12. A-133 COMPLIANCEWHY…DO WE CARE?

13. A-133 Compliance WHY . . . Do We Care? • Findings are reported to Federal government and become public record, distributed to all Federal Agencies through a clearing house. • Federal and Non-Federal sponsors look at A-133 as a ‘report card’ of how we spend their money.

14. A-133 Compliance WHY . . . Do We Care? • It strengthens the relationship of trust that exists between the sponsor and recipient • It suggests a presence of the stewardship necessary to properly safeguard the Federal Government’s investment in programs

15. A-133 Compliance WHY . . . Do We Care? • Negative publicity, may cause harm to reputation and prestige • May cost $ millions in payback • Loss of Federal expanded authorities, additional oversight burden

16. What Does Compliance Mean? • Effective management of public funds to maximize outcomes • The avoidance of fraud, mismanagement, and poor management of Federal funds • Adherence to laws, rules and regulations • Check and balances - internal controls • Stewardship of Federal funds

17. Compliance Pitfalls • Misuse of funds • Unallowable costs • Misallocation of costs • Excessive cost transfers • Delinquent financial reporting • Inaccurate effort reporting/improper allocation of staff time • Inadequate subrecepient monitoring

18. Why We Have Problems With Compliance • Lack of understanding by staff of roles and responsibilities • Inadequate resources • Incomplete, outdated or nonexistent policies and procedures • Inadequate staff training and education

19. Why We Have Problems With Compliance • Inadequate systems • Lack of documentation and audit trail to support claimed expenses • Perception that internal control systems are not necessary

20. Compliance - Back to the Basics • Do the right thing…from the start!!! • Keep policies current with Federal requirements • Perform risk assessments and implement adequate internal controls

21. Compliance - Back to the Basics Develop a continuing training program Monitor first, audit second COMMUNICATE, COMMUNICATE, COMMUNICATE!!! with employees and Federal agency. DOCUMENT, DOCUMENT, DOCUMENT!!! Always remember, if you didn’t write it down, it didn’t happen.

22. KEY DEFINITIONS

23. Terms You Should Know • Assistance • Procurement • Award • Sub-Award • Grant • Cooperative Agreement • Contract • Pass-Through Entity • Recipient • Sub-recipient • Vendor • Direct Costs • Indirect Costs • Internal Control

24. Assistance vs. Procurement • Financial Assistance– Provides support or stimulation to accomplish a public purpose. Award can be a grant or cooperative agreement. • Procurement – Purchase of goods and services to accomplish a government purpose; services can include research. Award is a contract.

25. Definition of Award • Financial assistance that provides support to accomplish a public purpose. • Includes grants and other agreements in the form of money or property in lieu of money by the Federal Government

26. Awards Do Not Include: • Technical assistance • Loans, loan guarantees, interest subsidies, insurance • Direct payments of any kind to individuals • Contracts, which are required to be entered into and administered under procurement laws and regulations

27. Definition of Subaward • Financial assistance made by a recipient to an eligible subrecipient • Includes any financial assistance when provided by legal agreement, even if the agreement is called a contract • Does not include the purchase of goods and services

28. Definition of Grant • Purpose is to transfer money, property, services or anything of value to recipient in order to accomplish a public purpose. • No substantial involvement is anticipated between government and recipient during performance of activity.

29. Definition of Cooperative Agreement • Purpose is to transfer money, property, services or anything of value to recipient in order to accomplish a public purpose. • Substantial involvement is anticipated between government and recipient during performance of activity.

30. Definition of Contract • Primary purpose is to acquire property or services for direct benefit or use of the Federal Government. • Government determines whether procurement contract is appropriate. • Allowable activities based on terms and conditions of contract • Governed by terms of the contract and State law

31. Definition of Pass-Through Entity • A Non-Federal Entity that provides a Federal award to a subrecipient to carry out a Federal program

32. Definition of Recipient • Organization receiving financial assistance from a Federal Agency to carry out a project or program • Term may include commercial, foreign or international organizations which are recipients and subrecipients

33. Subrecipient Versus Vendor Subrecipent: • A Non-Federal Entity that expends Federal awards received from a pass-through entity to carry out a Federal program • Has performance measured against whether the objectives of a Federal program are met

34. Subrecipient Versus Vendor Subrecipient: • Has responsibilities for programmatic decisions • Is responsible for complying with Federal program requirements • Uses Federal funds to carry out a program as compared to providing goods or services for a program

35. Subrecipient Versus Vendor Vendor: • Provides goods and services within normal business operations • Operates in a competitive environment • Provides similar goods or services to many different purchasers

36. Subrecipient Versus Vendor Vendor: • Retains no rights to intellectual property • Provides the goods or services that are required for the conduct of a Federal program but are ancillary to the operation of the Federal program • Is not subject to compliance requirements of the Federal program

37. Direct Versus Indirect Costs Direct Costs: • Can be identified with a specific project or activity relatively easily with a high degree of accuracy • Direct Salaries & Wages • Materials & Supplies • Consultants & Subcontractors

38. Direct Versus Indirect Cost Indirect Costs: • Referred to as Facilities & Administrative costs • Indirect costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular project or activity • Fringe Benefits • Overhead • G & A

39. Internal Control A process designed to provide reasonable assurance of achieving the following: • Effective and efficient operations • Reliable financial reporting • Compliance with laws, rules, regulations and guidelines

40. Roles and Responsibilities The Players: • Principal Investigator (PI)/Project Manager • Department/Unit Administrator • Department Chair/Program Manager • Dean/Division Director • Central/Grant Administration

41. Roles and Responsibilities PI/Project Manager: • Awareness of requirements • Monitor and oversight of day-to-day aspects of the project • Prepare required progress reports

42. Roles and Responsibilities PI/Project Manager: • Authorize all project expenditures and payments to consultants and subcontractors • Adhere to terms and conditions of award • Retain project data and materials as required

43. Roles and Responsibilities Department/Unit Administrator: • Provide administrative support to the project • Assist in complying with award terms and conditions, regulations and policies • Monitor expenditures of award funds, obtain necessary authorized signatures

44. Roles and Responsibilities Department/Unit Administrator: • Coordinate with Central/Grant Administration on reporting • Assist Central/Grant Administration with closeout and audit activities

45. Roles and Responsibilities Department Head/Program Manager: • Overall administrative and financial operation of the department/program • Oversight of all project activity and staff & other resources

46. RolesandResponsibilities Dean/Division Director: • Management support, sets tone at top, broad oversight of projects/programs • Provide divisional/unit concurrence in negotiation and acceptance of awards • Provide divisional/unit oversight for compliance with regulatory requirements

47. Roles and Responsibilities Central/Grant Administration: • Management of all aspects of an award throughout its life cycle from pre-award through closeout activities. • Liaison with Federal Agencies • Assistance in locating funding opportunities • Negotiation and acceptance of awards

48. Roles and Responsibilities Central/Grant Administration: • Prepare billings, financial reports and otherelectronic submittals • Maintain time reporting and grant accounting system • Provide advise on financial matters • Coordinate A-133 and other audits

49. INTERNAL CONTROLS REVIEWED/INTERNAL CONTROL QUESTIONNAIRE

50. Single Audit • Understanding controls over Federal compliance requirements to support a low assessed level of control risk over major programs • - Required report and schedule of findings • GAS • Added requirement on safeguarding controls and controls over compliance • with laws and regulations • Require report and written significant deficiencies and material weaknesses • GAAS • Obtain understanding of internal controls over financial reporting sufficient to plan audit • Understand controls; whether in place; whether operating • Report oral or written significant deficiencies and material weaknesses Single Audit Test of Controls is Built On Foundation of Government Audit