By Kelly Rancourt, CPA
This past year, not-for-profits and other non-federal organizations have been implementing the new changes related to the OMB Uniform Guidance (2.CFR.200) as they receive funding under the new regulations.
However, the guidance over 2.CFR.200 Subpart F – Audit Requirements will be effective for audit years beginning after December 26, 2014. As such, the first audits subject to the new auditing requirements will be for organizations with a year end of December 31, 2015 and later. These requirements replace the audit requirements under OMB Circular A-133 and will impact the way auditors plan and report their results under single audits.
The top 8 changes to the audit requirements for auditors are noted below:
1. Single Audit Threshold (200.501)
The threshold for requiring a single audit increases from $500,000 to $750,000 in federal expenditures. The OMB is estimating that there will be approximately 5,000 fewer single audits.
2. Type A Thresholds (200.518)
The lowest level threshold for type A programs has been increased from $300,000 to $750,000. This matches the Single Audit Threshold in order to help reduce confusion in implementing the new guidance. The remaining Type A thresholds depend on the amount of an organization’s Schedule of Expenditures of Federal Awards (SEFA), and is presented in the table below (per 2.CFR.200.518(b)(1)).
Programs that fall under the respective Type A Threshold are considered Type B programs.
3. Type A Program Risk Assessment (200.518 & 200.519)
As with previous OMB guidance (A-133), a risk assessment must be performed on all Type A programs. Under Uniform Guidance, a Type A program will be considered high risk and thus subject to audit as a major program if the program has not been audited in the past two years, or if the program had a high risk finding during its most recent audit period. A high risk finding is defined in the Uniform Guidance as a modified opinion, material weakness in internal control, and/or known or likely questioned costs that exceeded 5% of total program expenditures. In assessing risk, the auditor must consider the impact of program risks including federal or pass-through entity oversight of the program, results on previous audit follow-ups, and changes in personnel or systems.
Under prior OMB guidance (A-133), a Type A program would be considered high risk if it had any finding, including significant deficiencies, in the prior period audited. Uniform Guidance now limits this to a high risk finding. Additionally, under A-133, the auditors were also able to assess risk based on certain inherent risk considerations. This has been removed under the new Uniform Guidance.
4. Type B Program Risk Assessment (200.518 & 200.519)
The auditor must perform a risk assessment of Type B programs to assess which programs are high risk. However, the new Uniform Guidance is not requiring that all Type B programs be assessed. Instead, it requires that an assessment be performed on Type B programs that are over 25% of the respective Type A threshold. In addition, an auditor is not required to identify more high-risk Type B programs than 25% of the number of low-risk Type A programs. Additionally, when selecting the Type B programs to assess for risk, the Uniform Guidance encourages an approach that could lead to different high risk Type B programs audited as a major program in a given period.
Under prior OMB guidance (A-133), Type B program risk assessments were performed on programs over $100,000. An auditor was given two options in performing the risk assessment for coverage of Type B programs assessed. Option 1 was to perform risk assessments on all Type B programs and select 50% of high-risk Type B programs up to the number of low-risk Type A programs. Option 2 was to perform risk assessments on all Type B programs until the number of Type B programs equaled the number of low-risk Type A programs.
Under Uniform Guidance and as previously under A-133, a single risk criteria would not cause a Type B program to become a high risk program. Auditor judgment is part of the risk assessment.
At a minimum, an auditor must select for major programs all Type A programs assessed at high risk and all Type B programs identified as high risk. Additionally Type A programs may be selected to meet the Percentage of Coverage Rule.
5. Percentage of Coverage Rule (200.518)
For auditees assessed at low risk, the total major programs selected based on the risk assessment discussed above must be at least 20% of the total federal awards expended. For auditees not considered low risk, the percentage coverage is increased to 40%.
Under prior OMB guidance (A-133), the percentage coverage was 25% for low risk auditees and 50% for auditees not considered low risk.
6. Criteria for a Low Risk Auditee (200.520)
An auditee must meet all of the conditions described in the Uniform Guidance to be considered a low risk auditee. The conditions take a two-year lookback approach. For the past two years, the following must be applicable for all conditions:
- Single audits have been performed on an annual basis in accordance with OMB guidance.
- Unmodified opinion on financial statements in accordance with generally accepted accounting principles or other basis of accounting that is required by a state law (new addition to Uniform Guidance)
- Unmodified in-relation-to opinion on the SEFA
- No material weakness identified under the requirements of GAGAS
- The Type A programs audited as major programs did not have a material weakness, material noncompliance, and/or questioned costs that exceeded 5% of program expenditures
- Data Collection Form is filed by submission due date with the Federal Audit Clearinghouse
Additionally, if the auditor’s report included a going concern paragraph, an auditee would automatically be precluded from being considered a low-risk auditee. Lastly, an auditee can no longer obtain a waiver for internal control weaknesses from federal agencies in order to qualify as a low-risk auditee.
7. Audit Findings Changes (200.516)
Under Uniform Guidance, the known and likely questioned costs threshold has been raised from $10,000 to $25,000. If there are known and/or likely questioned costs that exceed $25,000, they must be reported as an audit finding.
Uniform Guidance also notes that the Corrective Action Plan prepared by the auditee in response to the audit findings should be documented separately from the auditor’s findings. This is to help distinguish what is prepared by the auditors versus the auditee.
All other requirements related to the audit findings remain consistent with previous OMB guidance (A-133).
8. Schedule of Expenditures of Federal Awards Disclosures (200.510)
Uniform Guidance adds new disclosures to be included with the SEFA. This includes a requirement to disclose whether or not the entity elected to use the 10% de minimis indirect cost rate.
Additionally, for loans or loan guarantees reported on the SEFA, the notes to the SEFA must disclose the outstanding balance at the end of the audit period. Loans and loan guarantees are reported on the SEFA based on their balance at the beginning of the audit period.
2.CFR.200 Subpart F results in some significant changes in the way single audits are planned and reported. Auditors and auditees should be aware of these changes, and how they will affect their audits.
For additional resources related to Uniform Guidance, see the following:
- Uniform Guidance, 2.CFR.200
- Federal Notice with Preamble
- Council on Financial Assistance Reform (COFAR) and FAQs
Various industry organizations are also publishing information as it becomes available:
- AICPA Government Audit Quality Center
- Council on Governmental Relations (COGR) – an association of research universities
- National Association of College and University Business Officers (NACUBO)
- InsideNGO, a global NGO community
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