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ARRA Funding Leads to Big Changes

Accountability and Transparency Stressed
in New Federal Single Audit Guidelines

By Julia Debes - Public Affairs Staff Writer

Entities in Ohio received more than $7.5 billion between February 17, 2009 and March 31, 2010 in contracts, grants and loans through the American Recovery and Reinvestment Act of 2009 (ARRA), according to Recovery.gov. As a result, many state and local government entities qualified for a single audit for the first time in fiscal year 2009 or fiscal year 2010.

New federal guidelines are adding to the complexity of the single audit process for state and local governments that receive any type of federal funding, not just stimulus dollars, according to Marnie Carlisle, senior audit manager with the Ohio Auditor of State’s Accounting & Auditing Support Section.

Specifically, the Office of Management and Budget (OMB) and the Office of the President of the United States each issued new guidance on the single audit process this past spring, including stricter enforcement of filing deadlines, increased penalties for late filing and new requirements for sub-award recipients of federal funds.

A single audit, which combines an annual financial audit with additional audit coverage of federal funds, is required for any entity that expends more than $500,000 in federal awards (direct or indirect) in a fiscal year.

According to a May 2010 report by the Government Accountability Office (GAO), single audits “provide a source of information on internal control weaknesses, noncompliance with laws and regulations and the underlying causes and risks.”

While single audits are a thorough examination of an entity’s receipt and use of federal funds, the single audit process has “changed vastly since the adoption of the Recovery Act,” Carlisle said. Additionally, she stressed many of the new guidelines apply to all federal funds, not just ARRA disbursements.

Existing federal guidance in Section 320 of OMB Circular A-133 directs entities to submit single audits to the Federal Audit Clearinghouse within 30 days after receipt of an auditor’s report or nine months after the end of the audit period. However, federal agencies have routinely granted extensions to entities.

As a result of those extensions, a recent alert published by the American Institute of Certified Public Accountants’ Government Audit Quality Center indicated, “History has shown that generally more than 20 to 25 percent of the single audits are filed later than nine months after the end of the audit period.”

New OMB guidelines are intended to eliminate that practice. A March 22, 2010 OMB memorandum directed federal agencies to not grant any extensions for recipients of ARRA funds to file their mandated single audit “due to the importance of the single audits and the reliance of federal agencies on the audit results to monitor the accountability of Recovery Act programs.”

“This will certainly have a dramatic effect on state and local governments,” Carlisle said, explaining the new no-extension policy that became effective immediately for all agencies.

One significant consequence is that to qualify as a low-risk auditee, both of the prior two years’ audits must have been submitted to the Federal Audit Clearinghouse by the due date and meet the other requirements of OMB Circular A-133.

“If state and local governments do not file timely, they will not qualify as a low-risk auditee in the subsequent audit, meaning we will have to audit 50 percent of their federal funding rather than 25 percent,” Carlisle said. “This will increase audit time as well as audit costs for entities that have previously qualified as low-risk auditees.”

Other federal guidelines dictate stern penalties for not meeting the filing deadline. An April 6, 2010 executive order directs federal agencies to “further intensify their efforts to improve reporting compliance by prime recipients of the Recovery Act, wherever authorized and appropriate, by terminating awards; pursuing measures such as suspension and debarment; reclaiming funds; and considering, initiating, and implementing punitive actions.”
Carlisle cautions entities not only to fulfill their own obligations in completing the single audit in a timely manner, but also to make certain state auditors have the information needed to complete regular financial audits of the entity with enough time to meet the strict deadline.

(For more information about filing single audits, please refer to Marnie Carlisle’s article in the Winter 2009 edition of Best Practices.)

In addition to strict enforcement of the filing deadline, the April 6, 2010 OMB memorandum also outlined new reporting requirements for sub-award recipients of any federal program. Beginning on October 1, 2010, sub-award reporting will be required for any new grants, contracts or task delivery orders awarded after that date for any entity that receives more than $25,000 in grants or contracts.

To date, federal agencies have only reported contract or award information at the prime level. However, according to the memorandum, “Recipients, sub-recipients, contractors and sub-contractors should be prepared to report on applicable grants, contracts and orders awarded.”

Sub-award reporting will now be required within 30 days after a sub-grant or sub-contract is made and after any subsequent changes. All reporting will be through a single website, USAspending.gov, which is intended to meet federal transparency requirements.

USAspending.gov is an existing website that has been utilized since January 2008 to report prime recipient awards. However, it is being retooled to include the sub-award reporting and to increase the transparency of federal funding.

Carlisle explained that criteria for reporting to USAspending.gov will be similar to reporting requirements for Recovery.gov, but there will be some differences. Specific reporting guidelines were released by OMB on July 30, 2010.

By definition in the memorandum, a sub-award is defined as “a monetary award made as a result of an award to a grant recipient or contractor to a sub-recipient or sub-contractor respectively. The term includes first-tier sub-awards and does not include awards made by a first-tier sub-recipient or sub-contractor to a lower tier sub-recipient or sub-contractor.”

To illustrate, Carlisle provides the following example of a first-tier sub-grant:

“The U.S. Department of Energy awards a grant to the State of Ohio and the State of Ohio awards a sub-grant to the city of Columbus. In this example, the Department of Energy currently submits information to USAspending.gov on the Federal award to the State of Ohio. The new requirement to collect information on sub-awards will now require the submission of information on the sub-grant from the State of Ohio to the city of Columbus and subsequent posting of that data onto USAspending.gov.”

With Recovery.gov reporting requirements, state agencies in Ohio are responsible for reporting sub-recipient data into the federal website. Sub-recipients are only required to provide state agencies with information needed for the report. Carlisle said she expects the process to be similar with the new USAspending.gov reporting.

The influx of new guidelines indicates the federal government is paying close attention to how state and local governments receive and spend federal funds. As a result, all entities should continue to be vigilant about monitoring new guideline requirements to ensure their compliance.
After all, as Carlisle explained, “Accountability and transparency are the key guiding principles for all federal funding.”