Federal Government Standards For Internal Control – Green Book

1. Federal Government Standards For Internal Control – Green Book TerenzioVolpicelli, CPA, Partner Tony Roselli, CPA, CGMA, Partner Roselli, Clark and Associates MA Municipal Accountants &Auditors Association Amherst, MA – March 13, 2017

2. Agenda • Uniform Guidance • Internal Controls • Green Book/COSO • How does a community implement • Single Audit Report/Management Letter

3. Uniform Guidance • Title 2 US “Code of Federal Regulations” (CFR) Part 200, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” • Referred to as “The Uniform Guidance” • Issued December 26, 2013 with an effective date for audits of fiscal years that begin after December 26, 2014 for non-Federal entities; (Massachusetts for fiscal years ending June 30, 2016 forward)

4. Uniform Guidance • Non-Federal entities include: • States and Commonwealths • Agencies of States and Commonwealths • United States possessions • Indian Tribal Governments • Cities • Towns • School Districts • Special Purpose Districts • Housing Authorities • Redevelopment Authorities • All other Authorities and Districts • Non-Public Organizations

5. Uniform Guidance • Replaces the requirements under OMB A-133 and all eight previous OMB circulars in place prior to December 26, 2013 • Includes many major changes • Objective of changes is to focus on higher dollar, higher risk rewards • End goal is to reduce administrative burden and the risk of fraud, waste and abuse

6. Uniform Guidance • Major changes include: • Raised previous single audit requirement of $500,000 in federal expenditures to $750,000 • Modified the manner in selecting major programs for audit • Increased threshold for questioned costs from $10,000 to $25,000 • Introduced new internal control requirements (200.61 and 200.62)

7. Uniform Guidance • Evolution of Single Audit • 1984 – OMB A-128 – threshold for audit was $100,000 in receipts; $25,000 for major programs • 1997 – OMB A-133 – threshold for audit was $300,000 in expenditures; $100,000 for major programs • 2003 – OMB A-133 increased threshold for audit to $500,000 in expenditures; $300,000 for major programs • 2016 – The Uniform Guidance increased threshold for audit to $750,000 in expenditures; $750,000 for major programs • Expected to reduce number of required audits by 5,000

8. Uniform Guidance

9. Internal Control

10. Internal Control • The Uniform Guidance recommends that this internal control system be based on a recognized internal control framework • GAO – Green Book • COSO – Committee of Sponsoring Organizations – Treadway Commission

11. Internal Control

12. Internal Control • The use of the word “should” has raised some concern as it seems to imply that adopting an internal control framework is optional. However, Federal officials [and the AICPA] have made it clear that where Federal programs require effective internal controls, the expectation is that these systems meet or exceed the standards set by GAO. Source: National Grant Management Association

13. Internal Control

14. Green Book/COSO • Green Book defines internal controls as a process affected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity are achieved. It is the first line of defense in safeguarding public resources.

15. Green Book/COSO

16. Green Book/COSO • What are the objectives the Green Book is speaking to? • Operations – effectiveness and efficiency of operations • Reporting – reliability of reporting for internal and external use • Compliance – compliance with applicable laws and regulations [including The Uniform Guidance] • The Green Book’s internal control framework, which consists of five components of internal control, is remarkably consistent with the COSO internal control framework as illustrated on the following slide:

17. Green Book/COSO

18. Green Book/COSO

19. Green Book/COSO

20. How does a Community Implement • How does my community implement? • Become familiar with Green Book • Understand the 5 components • Understand the 17 principles • Review handout with guidelines

21. How does a Community Implement • Common inquiry • So, I have this Internal Control Manual for Federal Grants template that MASBO provided by School Business Manager. Can’t I just change the names in this report and be done with this? • The MASBO controls manual is very good. However, it is one component of the internal control system. It addresses the Control Activities component of internal control. It does not address the other 4 components. • The MASBO controls manual likely doesn’t cover your CDBG, public safety and other significant grants.

22. Single Audit Report/Management Letter • Impact of non-compliance • Informational item - warning in fiscal year 2016 (just passed) • Management Letter finding in fiscal year 2017 • Management Letter finding and Single Audit significant deficiency in fiscal year 2018

23. Questions