What to Expect on an A-133 Audit

1. Texas Association of Student Financial Aid Administrators Fall Conference 2013 What to Expect on an A-133 Audit Ellie Thedford, CGAP, Senior Auditor Parsons Townsend, CGAP, CICA, Senior Auditor Texas State Auditor’s Office October 9, 2013

2. Objectives • Single Audit Overview • Initial Project Planning • Preparing for an Audit • Fieldwork • Findings and Management Responses 1

3. Single audit overview

4. Single Audit Background • Established by the Single Audit Act of 1984 (amended in 1996). • Applies to non-profit and government entities that expend $500,000 or more in federal awards annually. 2

5. Single Audit Background • Components of the Single Audit. • Financial statement opinion audit. • Report on compliance and internal control over compliance for each major program. • Schedule of Expenditures of Federal Awards (SEFA). 3

6. Single Audit Background • Compliance Portion Objectives: • Obtain understanding of internal controls over compliance for each major program, assess control risk of noncompliance, and perform tests of controls. • Determine whether the entity complied with laws and regulations that may have a direct and material effect on each major program. 4

7. Single Audit Background • SEFA Objective • Determine whether the Schedule of Expenditures of Federal Awards (SEFA) is fairly presented in relation to the entity’s financial statements as a whole. Note: Because the SEFA serves as the primary basis for major program determination, the accuracy and completeness of the SEFA is very important to the Single Audit. 5

8. Single Audit in Texas • For fiscal year 2012, the State expended: • $50.2 billion in federal funds. • $4 billion in Student Financial Assistance (SFA) cluster federal funds. • The state audit covers all entities included in the State’s Comprehensive Annual Financial Report (CAFR). • Does not include community colleges or private institutions. 6

9. Proposed Changes to the Single Audit • Consolidation of Circulars (8 into 1). • Change in selection of Type A and Type B major program determinations. • Reduction and consolidation of required compliance areas for testing. • Additional findings requirements: • Repeat finding • Sample size support for statistical samples 7

10. Student Financial Assistance Cluster • 84.007 Federal Supplementation Educational Opportunity Grant • 84.033 Federal Work Study • 84.038 Federal Perkins Loans • 84.063 Federal Pell Grant Program • 84.268 Federal Direct Student Loans • 84.379 Teacher Education Assistance for College and Higher Education Grant • 84.408 Iraq and Afghanistan Service Grants • 93.264 Nurse Faculty Loan Program • 93.342 Health Professions Student Loans, including Primary Care Loans and Loans for Disadvantaged Students • 93.364 Nursing Student Loans • 93.408 ARRA- Nurse Faculty Loan Program • 93.925 SDS 8

11. Audit Time Line 9

12. Initial project planning

13. Major Program Determination • Process to determine which programs should be included in annual A-133 audit. • Required to cover at least 50 percent of federal expenditures each year. • For State of Texas, the determination is done by the State Auditor Office’s contractor. 10

14. Major Program Coverage • To obtain sufficient audit coverage for the SFA cluster, we must audit multiple higher education institutions each year. • We perform limited procedures for some of the higher education institutions with lower SFA cluster expenditures each year. 11

15. Site Selection Considerations • SFA cluster expenditures • Larger institutions audited annually • Designation of tiers • Prior audit results. • Fraud complaints. • Other risk notes, including other internal or external audits. • Time since last audit. • Southern Association of Colleges and Schools (SACS) accreditation cycle. 12

16. Initial Planning • Initial contact. • Engagement letter and expectations memo. • Scheduling on-site fieldwork. • Control questionnaires or documents • Separate questionnaires or documents for each compliance area. • Information and population requests. • Multiple populations required. 13

17. Common Planning Issues • Difficulty obtaining populations. • No query or support provided to prove population completeness. • Unofficial withdrawals. • All cash draws made in year, rather than only draws on current awards. 14

18. Preparing for an audit

19. Preparing for an Audit • Establish and update written policies or procedures • Maintain evidence of reviews or approvals • Monitor critical activities, including student determinations and adjustments 15

20. fieldwork

21. Internal Controls Over Compliance • Auditors gain an understanding of internal controls related to SFA cluster. • Perform assessment of controls based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. • Test internal controls that are key to SFA processes. • Test information technology general controls. 16

22. Information Technology General Controls • Information Security Policies • User Access • Passwords. • High-profile Roles. • Periodic Review of User Access. • Change Management • Authorization and Testing. • Migration of Changes. • Configuration and Emergency Changes. • Operations 17

23. Common General Control Issues • Lack of documentation of development testing and insufficient approval of system changes. • User Access • More access than necessary. • Terminated or transferred employees. • Shared generic accounts. • No review of user access. • Segregation of Duties • Programmers with access to production. • Users who can initiate, submit, and approve critical transactions. 18

24. Compliance Testing • Typically done on a sample basis. • If exceptions, auditors may attempt to quantify the exceptions for the entire population. • For some compliance areas, auditors will perform data analysis to review the entire population. 19

25. Audit Procedures • Office of Management and Budget Circular A-133 Compliance Supplement • Details requirements for each federal program. • Guides the audit procedures and requirements tested for each program. • Catalog of Federal Domestic Assistance (CFDA) number identifies each federal program. • 2013 Supplement was published in July 2013. 20

26. Compliance Sample Sizes • American Institute of Certified Public Accountants’ (AICPA) Sample Size Guidance. • Based on inherent risk and control risk for each compliance area. • Sample sizes are increased when control weaknesses and/or compliance exceptions are identified. • Sample sizes are typically 25, 40, or 60. 21

27. Key Compliance Requirements • 13 primary compliance requirements. • Special Tests and Provisions. • Additional areas that can be added by the federal awarding agency for each program or cluster. • Limited vs. Full Scope Higher Education Institutions. • Not all compliance areas are considered direct and material based on quantitative and/or qualitative considerations. Therefore, some compliance areas may not be included in our audit work. 22

28. Cash Management • Objective: Determine whether, for advance payments, the recipient has minimized the time between transfer of funds and their disbursement. • Test that disbursements were made within three business days of receipt of funds. • Determine whether the higher education institution earned interest on federal funds. 23

29. Eligibility • Objectives: • Determine whether eligibility determinations were made, individual participants were determined to be eligible, and only eligible individuals participated. • Determine whether amounts provided to participants were calculated according to requirements. 24

30. Eligibility • Student met general SFA requirements. • Enrolled in eligible, degree seeking program. • U.S. citizen or national. • Maintained satisfactory academic progress. • Student met program specific requirements. • For example, enrolled at least half-time for Direct Loans. 25

31. Eligibility • Student had financial need. • Cost of attendance correctly calculated, based on actual or expected enrollment. • Correct expected family contribution. • Awards made within annual and aggregate limits. • Awards did not exceed student need. 26

32. Common Eligibility Issues • Cost of Attendance Calculations • Errors in manual calculations or adjustments. • Institution does not have less than full-time budgets. • Institution does not budget based on actual or expected enrollment. • Documentation of professional judgment. • Satisfactory Academic Progress (SAP) • No documentation of appeal process. • Process to assess SAP is not consistent with policy. • Assistance awarded to students who did not maintain SAP. • Data Analysis results • Grad students receiving subsidized loans • Incorrect awards for Pell, FSEOG, etc. 27

33. Reporting • Objective: Determine whether required reports include all activity, are supported by accounting records, and are fairly presented in accordance with requirements. 28

34. Reporting • Common Origination and Disbursement (COD) System • Test origination and disbursement records to determine accuracy and completeness. • Test timeliness of reporting. • Key items include disbursement date and disbursement amount. • Fiscal Operations Report and Application to Participate (FISAP) • Test that FISAP amounts are accurately supported. 29

35. Common Reporting Issues • Pell or Direct Loan disbursement records not submitted to the COD system in timely manner. • Incorrect disbursement amount or date reported. • Amounts reported on FISAP do not match supporting documentation. 30

36. Verification • Objective: Determine whether the higher education institution established verification policies and verified all required information for selected students. 31

37. Verification • Review verification policies to ensure they contain all required elements. • Test that the higher education institution: • Verified information for selected students. • Obtained acceptable documentation. • Matched information to the student application. • Submitted corrections when required. • Adjusted awards based on corrections, if applicable. 32

38. Common Verification Issues • Verification policies do not meet federal requirements. • Incorrect verification of information due to manual verification process • Household size • Number in college • Income tax paid • Lack of follow-up on required corrections (new Institutional Student Information Record, award adjustments) 33

39. Changes in Verification • 2012-2013 U.S. Department of Education Changes in Verification • $25 threshold for corrections • No more 30% requirement • Federal Register • Limited Scope Compliance Area in Fiscal Year 2013 34

40. Disbursements • Objective: Determine whether disbursements to students were made within required time frames and whether required documents and approvals were obtained before disbursing SFA funds. 35

41. Disbursements • Test that disbursements were not made more than 10 days before start of semester. • Test that all eligibility requirements were met before disbursements. • Test that disbursement notifications for loans and certain grants were sent within the required time frames, as required. 36

42. Return of Title IV Funds • Objective: Determine whether the higher education institution is making returns in the proper amount and in a timely manner and is applying the returns to federal programs as required. 37

43. Return of Title IV Funds • Test that return calculations or determinations were accurate for students who withdrew, dropped out, or never began attendance. • For students who received all Fs, determine whether returns were made, if applicable. • Test that returns were made in a timely manner. 38

44. Common Return of Title IV Funds Issues • Payment period determined incorrectly. • Insufficient process for determining whether student ever attended during a term. • All “F“ report not capturing a combination of “Fs,” withdrawals, etc. • Insufficient documentation of attendance • Using wrong date for calculation • Determinations of withdrawal date for unofficial withdrawals not done in a timely manner. 39

45. Enrollment Reporting • Objective: Determine whether the higher education institution is notifying the U.S. Department of Education and the National Student Loan Data System (NSLDS) of changes in student status in a timely and accurate manner. 40

46. Enrollment Reporting • Test that student status changes were accurately reported to NSLDS within the required time frames. • Higher education institution is responsible for timeliness even if it uses the National Student Clearinghouse for submissions. 41

47. Common Enrollment Reporting Issues • Failure to report status changes to NSLDS. • Incorrectly reporting graduated students as enrolled or withdrawn. • For unofficially withdrawn students, not reporting students as withdrawn based on determined withdrawal date. 42

48. Institutional Eligibility • Objective: Determine whether the higher education institution meets applicable institutional eligibility requirements. 43

49. Institutional Eligibility • Test that higher education institution: • Maintained and met required ratios for correspondence courses, incarcerated students, and ability-to-benefit students. • Did not pay commission or bonuses. • Established reasonable SAP standards. • Received approval for additional locations on Eligibility and Certification Approval Report (ECAR). 44

50. Common Institutional Eligibility Issues • Ratio calculations are not maintained, or there is no process to calculate the ratios. 45