OMB A-133 Audits

1. OMB A-133 Audits Belinda Rinker, Senior Advisor to the Office of Head Start belinda.rinker@acf.hhs.gov

2. 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 entity’s financial statements and Federal awards.

3. 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

4. 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

5. 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

6. Sample Audit Report Section

7. 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.

8. 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 entity’s 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 material level.

9. 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.

10. 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 • Related party transactions