[Federal Register Volume 60, Number 200 (Tuesday, October 17, 1995)]
[Proposed Rules]
[Pages 53717-53724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25120]
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DEPARTMENT OF AGRICULTURE
Office of Finance and Management
7 CFR Parts 3015, 3016, and 3050
Audit Requirements for OMB Circular A-128
AGENCY: Office of Finance and Management, USDA.
ACTION: Proposed rule.
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SUMMARY: This proposed rule simplifies USDA audit requirements for
State, local, and Indian Tribal governments that receive USDA financial
assistance or cost-type contracts and defines USDA responsibilities for
implementing and monitoring those requirements.
DATES: Comments must be submitted on or before December 18, 1995.
ADDRESSES: Comments may be mailed to Lennetta Elias, Audit Liaison
Team, Federal Assistance and Fiscal Policy Division, Office of Finance
and Management, Room 3031 South Building, 14th and Independence Ave.,
SW., Washington, DC 20250.
FOR FURTHER INFORMATION CONTACT: Lennetta Elias on (202) 720-0979.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This proposed rule was reviewed under Executive Order 12866 and it
was determined that it is not a significant regulatory action. This
proposed rule will not have an annual effect on the national economy of
$100 million or more or adversely affect in a material way the economy,
a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities; create a serious inconsistency or otherwise
interfere with an action taken or planned by another agency; materially
alter the budgetary impact of entitlements, grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or raise
novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in this Executive
order.
Executive Order 12612
USDA evaluated this proposed rule under Executive Order 12612,
pertaining to Federalism. This proposed rule will affect State, local,
and Indian Tribal governments receiving financial assistance. This
proposed rule will increase their administrative discretion with regard
to the conduct of audits. For this reason, USDA has determined that
this proposed rule will not have sufficient Federalism implications to
warrant the preparation of a Federalism Assessment.
Executive Order 12778
The following information is given in compliance with Executive
Order 12778. All State and local laws and regulations that are in
conflict with this proposed rule are preempted. No retroactive effect
is to be given to this. This rule does not require administrative
proceedings before parties may file suit in court.
Regulatory Flexibility Act
This proposed rule was reviewed with regard to the requirements of
Public Law (Public Law 96-354. The Department of Agriculture (USDA)
certifies that this proposed rule will not, under the criteria of the
Regulatory Flexibility Act, have a significant economic impact on a
substantial number of small entities because it does not affect the
amount of funds provided in the covered programs, but rather simplifies
and consolidates administrative and procedural requirements.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.
3507), any applicable reporting and recordkeeping provisions required
by this proposed rule must be submitted to the Office of Management and
Budget (OMB) and will not be effective until OMB approves them. USDA
certifies that this proposed rule does not impose any reporting or
recordkeeping requirements under the Paperwork Reduction Act of 1980.
Background
This proposed rule amends title 7, Code of Federal Regulations
(CFR), parts 3015 and 3016. The single audit requirements found in
Secs. 3015.70 through 3015.76 of subpart I, part 3015, are moved to 7
CFR part 3050, Audits of State, local, and Indian Tribal governments.
Sections 3015.70 through 3015.76 of Subpart I are reserved for future
use. Section 3015.1 is revised to delete the audit provisions. As
identified in OMB Circular A-133
[[Page 53718]]
``Audits of Institutions of Higher Education and Other Nonprofit
Institutions of Higher Education and Other Nonprofit Institutions,''
USDA proposes to include in the coverage of this rule Federal cost-type
contracts used to buy services or goods for the use of the Federal
Government. A reference is added to 7 CFR 3016.26, subpart C, citing
USDA's regulations that implement OMB Circular A-128, Audits of State
and local governments, dated April 12, 1984.
USDA issued its final rule to implement the Single Audit Act (7 CFR
part 3015, subpart I) on January 14, 1986 (51 FR 1485). Since that
time, there have been concerns expressed that USDA's rule was unduly
complicated and difficult to interpret. Although the requirements set
forth in 7 CFR part 3015, subpart I, remain the same, this proposed
rule simplifies the language for easier implementation by State, local,
and Indian Tribal governments. This proposed rule also moves the audit
requirements from 7 CFR part 3015, subpart I to 7 CFR part 3050. Until
this proposed rule becomes final, the audit requirements for State,
local and Indian Tribal governments set forth in 7 CFR part 3015,
Subpart I, shall continue to be observed.
List of Subjects
7 CFR Part 3015
Accounting, Grant programs--Agriculture, Indians, Insurance,
Intergovernmental relations, Loan programs, Reporting and recordkeeping
requirements, Surety bonds.
7 CFR Part 3016
Accounting, Grant programs--Agriculture, Indians, Intergovernmental
relations, Reporting and recordkeeping requirements.
7 CFR Part 3050
Accounting, Indians, Intergovernmental relations, Grant program--
Agriculture.
Issued at Washtington, D.C.
Approved: September 21, 1995.
Anthony A. Williams,
Chief Financial Officer.
Dan Glickman,
Secretary of Agriculture.
For the reasons set forth in the preamble, title 7, chapter XXX of
the Code of Federal Regulations is proposed to be amended as follows:
PART 3015--UNIFORM FEDERAL ASSISTANCE REGULATIONS
1. The authority citation for part 3015 continues to read as
follows:
Authority: 5 U.S.C. 301.
2. Subpart I, consisting of Sec. 3015.70 through 3015.76 and
Appendixes A and B is removed and reserved.
3-4. Section 3015.1, paragraphs (a)(2) and (b), are revised to read
as follows:
Subpart A--General
Sec. 3015.1 Purpose and scope of this part.
(a) * * *
(2) Additionally, this subpart establishes intergovernmental review
provisions required by Executive Order 12372 for any programs listed in
the Federal Register as covered and policy on competition in awarding
discretionary grants and cooperative agreements.
* * * * *
(b) These rules supersede and take precedence over individual USDA
agency regulations and directives dealing with the administration of
grants and cooperative agreements to the extent such regulations and
directives are inconsistent with this part, unless such inconsistency
is based on a statutory provision or an exception has been obtained
from OMB. (See Sec. 3015.3) Definitions for the terms used are set
forth in Appendix A in this part.
* * * * *
PART 3016--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS
5. The authority citation for part 3016 continues to read as
follows:
Authority: 5 U.S.C. 301.
2. Section 3016.26 is revised to read as follows:
Sec. 3016.26 Non-Federal audit.
(a) Basic rule. Recipients and subrecipients are responsible for
obtaining audits in accordance with USDA's implementing regulations set
forth in 7 CFR parts 3050 and 3051.
(b) Commercial contractors (private for-profit and private and
governmental organizations) providing goods and services to State,
local, and Indian Tribal governments are not required to have a single
audit performed. State, local and Indian Tribal governments should use
their own procedures to ensure that the contractor has complied with
laws and regulations affecting the expenditure of Federal funds.
6. A new part 3050 is added to read as follows:
PART 3050--AUDITS OF STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS
Sec.
3050.1 Purpose.
3050.2 Policy.
3050.3 Scope.
3050.4 Definitions.
3050.5 Basic requirements.
3050.6 Assignment of responsibilities.
Appendix A to Part 3050--OMB Circular A-128, Audits of State and
Local Governments
Authority: 5 U.S.C. 301 and 31 U.S.C. 7505.
Sec. 3050.1 Purpose.
This part establishes audit requirements for State, local, and
Indian Tribal governments that receive from USDA direct (receipient) or
indirect (subrecipient) financial assistance or cost-type contracts
used to buy service or goods for the use of the Federal Government, and
assigns USDA agency responsibilities for implementing and monitoring
those requirements. Additionally, this part implements the audit
requirements and policies contained in OBM Circular A-128, ``Audits of
State and Local Governments.''
Sec. 3050.2 Policy.
USDA requires audits from those governmental entities that receive
financial assistance or cost-type contracts from USDA awarding agencies
and that are subject to the requirements of OMB Circular A-128,
included herein as appendix A of this part.
Sec. 3050.3 Scope.
This part applies whenever USDA provides financial assistance or
cost-type contracts directly or indirectly to State, local, and Indian
Tribal governments. USDA Office of Finance and Management (OFM) must
approve any proposed exception to or deviation from this part. Any
approved exceptions to this part based on statute, or other approved
deviations, will be promulgated through USDA agency-specific program
regulations. The required audits will expand on the traditional
financial statement audit by requiring additional work on internal
control systems, compliance testing, and reporting on the Federally
assisted programs.
Sec. 3050.4 Definitions
Exclusive of the definitions contained in appendix A of this part,
the following definitions apply.
Agency means an organizational entity of USDA (e.g., the Forest
Service) that reports to the Secretary of Agriculture, is recognized by
the USDA
[[Page 53719]]
Office of Personnel as an agency, and is included on USDA's list of
agencies.
Awarding agency means the USDA agency awarding financial assistance
or cost-type contracts to a recipient.
Financial assistance means assistance provided by a USDA awarding
agency in the form of grants, contracts, loans, loan guarantees,
property, cooperative agreements, food stamps and food commodities,
interest subsidies, insurance, direct appropriations or cost-type
contracts, but does not include direct Federal cash assistance to
individuals.
General oversight means where an audit agency has not been assigned
cognizance, the Office of Inspector General (OIG) for Federal Agencies
with the predominant amount of Federal funding shall provide technical
assistance to the State, local, and Indian Tribal governments. Where
there is no direct funding, OIG for Federal Agencies having the
predominant indirect funding provide the general oversight
responsibilities.
Lead agency means either the USDA awarding agency providing the
majority of financial assistance or cost-type contracts to State,
local, or Indian Tribal governments or a specific USDA awarding agency
with a special program interest or other established relationship.
Recipient means a State, local, or Indian Tribal government that
receives financial assistance or cost-type contracts directly from
USDA.
Sec. 3050.5 Basic requirements.
(a) USDA requires an audit from State, local Indian Tribal
government under the following conditions:
(1) Mandatory. State, local Indian Tribal governments that receive
$100,000 or more of total financial assistance or cost-type contracts
during a fiscal year shall have an audit in accordance with the
requirements of appendix A of this part.
(2) Optional. State, local Indian Tribal governments that receive
between $25,000 and $100,000 of total financial assistance or cost-type
contracts during a fiscal year shall have either an audit in accordance
with this part or a program-specific audit performed in accordance with
the relevant USDA awarding agency laws and regulations governing
individual programs. Program-specific audits shall be performed in
accordance with the Government Auditing Standards covering financial
audits issued by the Comptroller General of the United States. In
addition, the program-specific audit shall be performed in accordance
with any applicable USDA audit guide, compliance tests contained in the
OMB Compliance Supplement for the specific program involved, and any
program-specific audit regulations. If the program is not covered by
paragraphs (a)(1) through (a)(3) of this section, the auditor shall
design appropriate compliance tests to review program operations in
accordance with the Government Auditing Standards.
(3) Exclusion. State, local Indian Tribal governments that receive
less than $25,000 in total financial assistance or cost-type contracts
in a fiscal year are exempt from compliance with Federal audit
requirements. However, records must be available for review by
appropriate officials of USDA, the General Accounting Office (GAO), or
a subgranting entity. These entities shall be governed by the audit
requirements prescribed by State, local, or Indian Tribal government
laws or regulations.
(b) Nothing in this part exempts State, local, or Indian Tribal
governments from maintaining records of financial assistance or cost-
type contracts and/or from providing access to such records to Federal
Agencies, as provided for in Federal law, program regulations, or in 7
CFR part 3016.
(c) It is not intended that audits required by this part be
separate and apart from audits performed in accordance with State,
local, or Indian Tribal government laws. To the extent feasible, the
audit work required by this part should be done in conjunction with
those audits.
(d) An audit made in accordance with this part shall be in lieu of
any financial audit required under individual USDA awards. To the
extent that an audit made in accordance with this part provides USDA
agencies with the information and assurances they need to carry out
their overall responsibility, they shall rely upon and use such
information. However, a USDA agency shall make any additional audits or
reviews necessary to carry out responsibilities under Federal law and
regulation. Any additional USDA audits or reviews shall be planned and
carried out in such a way as to build upon work performed by the
independent auditor.
Sec. 3050.6 Assignment of responsibilities.
(a) OFM shall:
(1) Assure USDA awarding agency implementation and compliance with
this part; and
(2) Coordinate, consolidate, and prepare any reports on the
effectiveness of implementing this part.
(b) Each USDA awarding agency shall:
(1) Assure that governmental entities implement and comply with
this part.
(2) Require as a term of any USDA financial assistance or cost-type
contracts to State, local, and Indian Tribal governments that single
audits be conducted in a timely manner in accordance with the
requirements of this part, and be submitted to a designated official in
the USDA awarding agency and the OMB assigned cognizant agency, if one
has been assigned, and OIG. The audit report shall be due within 30
days after the completion of the audit. The audit should be completed
and the report submitted not later than 13 months after the end of the
recipient's fiscal year unless a longer period is agreed to between the
cognizant or awarding agency and the recipient.
(3) Require that the recipient maintain records to identify the
source and amounts of financial assistance or cost-type contracts
received by using the Catalog of Federal Domestic Assistance numbers.
(4) Provide a copy of this part to recipients or subrecipients,
upon request.
(5) Ensure required audits are conducted and audit reports are
received from recipients or subrecipients, upon request.
(6) Determine if an audit report adequately addresses the agency's
needs. If not, determine if a followup audit is necessary and advise
OIG.
(7) Ensure that appropriate action is taken on all audit findings
and recommendations pursuant to the Supplemental Appropriations and
Rescission Act of 1980 (Public Law 96-304, 94 Stat. 857); OMB Circular
A-50, ``Audit Followup;'' and Departmental Regulation 1720-1 which
prescribes USDA's internal process for audit followup, management
decisions, and final action.
(8) Coordinate with the recipient to seek corrective action on
system deficiencies and resolution of other cross-cutting issues
identified in the audit. Seek the views of affected Federal Agencies
before entering into negotiations and obtain their concurrence before
entering into a final agreement.
(9) Take appropriate action when the recipient either neglects to
resolve findings or the report does not meet the requirements of OMB
Circular A-128, including the imposition of sanctions. If USDA awarding
agencies incur costs, the recipient shall not charge USDA for the cost
of any audit that did not meet USDA requirements. However, if there was
an indirect cost plan with audit costs included, the following year's
indirect cost plan will offset the cost.
[[Page 53720]]
(10) Establish and maintain appropriate records as to the
effectiveness of State, local, and Indian Tribal governments in
carrying out the provisions of this part.
(11) Where State, local, and Indian Tribal governments receive
financial assistance or cost-type contracts of less than $100,000, and
do not obtain audits that meet the requirements of appendix A of this
part, ensure that Federal funds were spent in accordance with
applicable laws and regulations. Any of the following can be used to
determine recipient compliance with Federal requirements:
(i) Audits obtained by recipients conducted in accordance with the
Government Auditing Standards issued by the Comptroller General of the
United States.
(ii) Any other reasonably acceptable programmatic audit performed
on the recipient's operations in that fiscal year.
(iii) Evaluations of recipient operations by USDA awarding agency
officials.
(iv) Project audits by Federal auditors or audits obtained by
recipients.
(12) Coordinate the responses on audit reports from other USDA
awarding agencies if assigned as the lead agency.
(c) OIG shall:
(1) Provide technical advice and liaison to State, local, and
Indian Tribal government audit officials; independent auditors; and
other financial assistance or cost-type contract officials.
(2) Coordinate with other Federal Agencies to determine general
oversight responsibility if a cognizant agency has not been designated
by OMB. When the USDA OIG has general oversight responsibility, OIG
shall provide technical advice, as appropriate, and may assume
additional responsibilities such as conducting quality reviews of
reports and the auditor's work. Any requests received from recipients
or subrecipients for USDA to provide general oversight should be
forwarded to the appropriate USDA OIG Regional Office.
(3) If assigned as the cognizant agency, determine whether audits
have been performed by independent auditors in accordance with the
requirements of appendix A of this part.
(4) Perform or arrange for quality reviews of selected audits and
provide the results to other affected organizations. Determine whether
to perform quality reviews of the report and/or the auditor's work in
cases where audit quality or acceptability appear questionable.
(5) If assigned as the cognizant agency, advise the recipient and
awarding agency of any audit not in compliance with appendix A of this
part. Work with the recipient and auditor to effect appropriate
corrective action. If corrective action is not taken, notify the
recipient and other awarding agencies. Major inadequacies or repetitive
substandard performance by independent auditors shall be referred by
OIG to appropriate professional bodies for disciplinary action.
(6) Coordinate, to the extent practicable, audits performed by or
for Federal Agencies that are in addition to the audits required by
this part to ensure that the additional audits build upon previous
audits performed.
(7) If assigned as the cognizant agency, promptly inform other
affected Federal Agencies and appropriate Federal law officials of any
reported illegal acts or irregularities. Also, inform State and local
law enforcement and prosecuting authorities, if not otherwise advised
by the recipient, of any violation of law within their jurisdiction.
(8) When requested by a USDA awarding agency, work with the
awarding agency to arrange for additional audit coverage, as
appropriate.
(9) Maintain appropriate records regarding assigned cognizant
State, local, and Indian Tribal governments in carrying out the
provisions of this part.
(10) Assess the handling of audit reports within USDA for
compliance with this part.
(11) Where USDA has been assigned as the cognizant agency, provide
coordination for USDA agencies and other Federal Agencies.
(d) State, local, and Indian Tribal governments shall:
(1) Follow the audit arrangements and requirements set forth in
this part including the following:
(i) Use their own procedures to arrange for and prescribe the scope
of independent audits, provided that such audits comply with the
requirements set forth in appendix A of this part.
(ii) Include provisions in audit contracts requiring the audit
organization to retain audit working papers and reports in accordance
with appendix A of this part.
(iii) Ensure that their independent auditor is responsible for:
(A) Reviewing their systems for monitoring subrecipients and
obtaining and considering the impact of the subrecipient audit reports.
Also, include a review of the recipient's system for determining
whether the subrecipient audit reports comply with Government Auditing
Standards and generally accepted auditing standards.
(B) Testing to determine whether systems are functioning in
accordance with prescribed procedures.
(C) Commenting on monitoring procedures, if warranted by the
circumstances.
(D) Considering whether subrecipient audits require adjustment of
their financial statements, footnote disclosure, or modification of the
auditor's report.
(2) Establish a system for assuring that subrecipients meet the
requirements of this part.
(3) Evaluate the acceptability of subrecipient audits.
(4) Follow-up on the results of subrecipient audits.
(i) Ensure that subrecipient audit reports are transmitted to the
recipient. The recipient shall retain all subrecipient audit reports on
file for 5 years and make them available to OIG and GAO officials or
their designees upon request.
(ii) Take appropriate action on subrecipient audits and incorporate
the results of these audits into their financial records and related
reports. Questioned costs at the subrecipient level may be contingent
liabilities as far as the recipient is concerned and should be reported
as such, when appropriate.
(iii) Establish a systematic method to assure timely and
appropriate resolution of audit findings and recommendations.
Appendix A to Part 3050--OMB Circular A-128, Audits of State and
Local Governments
Executive Office of the President,
Office of Management and Budget, Washington, DC 20603.
Circular No. A-128
April 12, 1985.
To the Heads of Executive Departments and Establishments.
Subject: Audits of State and Local Governments.
1. Purpose. This Circular is issued pursuant to the Single Audit
Act of 1984, P.L. 98-502. It establishes audit requirements for
State and local governments that receive Federal aid, and defines
Federal responsibilities for implementing and monitoring those
requirements.
2. Supersession. The Circular supersedes Attachment P, ``Audit
Requirements,'' of Circular A-102, ``Uniform requirements for grants
to State and local governments.''
3. Background. The Single Audit Act builds upon earlier efforts
to improve audits of Federal aid programs. The Act requires State or
local governments that receive $100,000 or more a year in Federal
funds to have an audit made for that year. Section 7505 of the Act
requires the Director of the Office of Management and Budget to
prescribe policies, procedures and guidelines to implement the Act.
It specifies that the
[[Page 53721]]
Director shall designate ``cognizant'' Federal agencies, determine
criteria for making appropriate charges to Federal programs for the
cost of audits, and provide procedures to assure that small firms or
firms owned and controlled by disadvantaged individuals have the
opportunity to participate in contracts for single audits.
4. Policy. The Single Audit Act requires the following:
a. State or local governments that receive $100,000 or more a
year in Federal financial assistance shall have an audit made in
accordance with this Circular.
b. State or local governments that receive between $25,000 and
$100,000 a year shall have an audit made in accordance with this
Circular, or in accordance with Federal laws and regulations
governing the programs they participate in.
c. State or local governments that receive less than $25,000 a
year shall be exempt from compliance with the Act and other Federal
audit requirements. These State and local governments shall be
governed by audit requirements prescribed by State or local law or
regulation.
d. Nothing in this paragraph exempts State or local governments
from maintaining records of Federal financial assistance or from
providing access to such records to Federal agencies, as provided
for in Federal law or in Circular A-102, ``Uniform requirements for
grants to State or local governments.''
5. Definitions. For the purpose of this Circular the following
definitions from the Single Audit Act apply:
a. ``Cognizant agency'' means the Federal agency assigned by the
Office of Management and Budget to carry out the responsibilities
described in paragraph 11 of this Circular.
b. ``Federal financial assistance'' means assistance provided by
a Federal agency in the form of grants, contracts, cooperative
agreements, loans, loan guarantees, property, interest subsidies,
insurance, or direct appropriations, but does not include direct
Federal cash assistance to individuals. It includes awards received
directly from Federal agencies, or indirectly through other units of
State and local governments.
c. ``Federal agency'' has the same meaning as the term `agency'
in section 551(1) of Title 5, United States Code.
d. ``Generally accepted accounting principles'' has the meaning
specified in the generally accepted government auditing standards.
e. ``Generally accepted government auditing standards'' means
the Standards For Audit of Government Organizations, Programs,
Activities, and Functions, developed by the Comptroller General,
dated February 27, 1981.
f. ``Independent auditor'' means:
(1) a State or local government auditor who meets the
independence standards specified in generally accepted government
auditing standards; or
(2) a public accountant who meets such independence standards.
g. ``Internal controls'' means the plan of organization and
methods and procedures adopted by management to ensure that:
(1) resource use is consistent with laws, regulations, and
policies;
(2) resources are safeguarded against waste, loss, and misuse;
and
(3) reliable data are obtained, maintained, and fairly disclosed
in reports.
h. ``Indian tribe'' means any Indian tribe, band, nations, or
other organized group or community, including any Alaskan Native
village or regional or village corporations (as defined in, or
established under, the Alaskan Native Claims Settlement Act) that is
recognized by the United States as eligible for the special programs
and services provided by the United States to Indians because of
their status as Indians.
i. ``Local government'' means any unit or local government
within a State, including a county, a borough, municipality, city,
town, township, parish, local public authority, special district,
school district, intrastate district, council of governments, and
any other instrumentality of local government.
j. ``Major Federal Assistance Program,'' as defined by P.L. 98-
502, is described in the Attachment to this Circular.
k. ``Public accountants'' means those individuals who meet the
qualification standards included in generally accepted government
auditing standards for personnel performing government audits.
l. ``State'' means any State of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Commonwealth of the Northern Mariana
Islands, and the Trust Territory of the Pacific Islands, any
instrumentality thereof, and any multi-State, regional, or
interstate entity that has governmental functions and any Indian
tribe.
m. ``Subrecipient'' means any person or government department,
agency, or establishment that receives Federal financial assistance
to carry out a program through a State or local government, but does
not include an individual that is a beneficiary of such a program. A
subrecipient may also be a direct recipient of Federal financial
assistance.
6. Scope of audit. The Single Audit Act provides that:
a. The audit shall be made by an independent auditor in
accordance with generally accepted government auditing standards
covering financial and compliance audits.
b. The audit shall cover the entire operations of a State or
local government or, at the option of that government, it may cover
departments, agencies or establishments that received, expended, or
otherwise administered Federal financial assistance during the year.
However, if a State or local government receives $25,000 or more in
General Revenue Sharing Funds in a fiscal year, it shall have an
audit of its entire operations. A series of audits of individual
departments, agencies, and establishments for the same fiscal year
may be considered a single audit.
c. Public hospitals and public colleges and universities may be
excluded from State and local audits and the requirements of this
Circular. However, if such entities are excluded, audits of these
entities shall be made in accordance with statutory requirements and
the provisions of Circular A-110, ``Uniform requirements for grants
to universities, hospitals, and other nonprofit organizations.''
d. The auditor shall determine whether:
(1) the financial statements of the government, department,
agency or establishment present fairly its financial position and
the results of its financial operations in accordance with generally
accepted accounting principles;
(2) the organization has internal accounting and other control
systems to provide reasonable assurance that it is managing Federal
financial assistance programs in compliance with applicable laws and
regulations; and
(3) the organization has complied with laws and regulations that
may have material effect on its financial statements and on each
major Federal assistance program.
7. Frequency of audit. Audits shall be made annually unless the
State or local government has, by January 1, 1987, a constitutional
or statutory requirement for less frequent audits. For those
governments, the cognizant agency shall permit biennial audits,
covering both years, if the government so requests. It shall also
honor requests for biennial audits by governments that have an
administrative policy calling for audits less frequent than annual,
but only for fiscal years beginning before January 1, 1987.
8. Internal control and compliance reviews. The Single Audit Act
requires that the independent auditor determine and report on
whether the organization has internal control systems to provide
reasonable assurance that it is managing Federal assistance programs
in compliance with applicable laws and regulations.
a. Internal control review. In order to provide this assurance
the auditor must make a study and evaluation of internal control
systems used in administering Federal assistance programs. The study
and evaluation must be made whether or not the auditor intends to
place reliance on such systems. As part of this review, the auditor
shall:
(1) Test whether these internal control systems are functioning
in accordance with prescribed procedures.
(2) Examine the recipient's system for monitoring subrecipients
and obtaining and acting on subrecipient audit reports.
b. Compliance review. The law also requires the auditor to
determine whether the organization has complied with laws and
regulations that may have a material effect on each major Federal
assistance program.
(1) In order to determine which major programs are to be tested
for compliance, State and local governments shall identify in their
accounts all Federal funds received and expended and the programs
under which they were received. This shall include funds received
directly from Federal agencies and through other State and local
governments.
(2) The review must include the selection and testing of a
representative number of charges from each major Federal assistance
program. The selection and testing of transactions shall be based on
the auditor's professional judgment considering such factors as the
amount of expenditures for the program and the individual awards;
the
[[Page 53722]]
newness of the program or changes in its conditions; prior experience
with the program, particularly as revealed in audits and other
evaluations (e.g., inspections, program reviews); the extent to
which the program is carried out through subrecipients; the extent
to which the program contracts for goods or services; the level to
which the program is already subject to program reviews or other
forms of independent oversight; the adequacy of the controls for
ensuring compliance; the expectation of adherence or lack of
adherence to the applicable laws and regulations; and the potential
impact of adverse findings.
(a) In making the test of transactions, the auditor shall
determine whether:
--the amounts reported as expenditures were for allowable services,
and
--the records show that those who received services or benefits were
eligible to receive them.
(b) In addition to transaction testing, the auditor shall
determine whether:
--matching requirements, levels of effort and earmarking limitations
were met,
--Federal financial reports and claims for advances and
reimbursements contain information that is supported by the books
and records from which the basic financial statements have been
prepared, and
--amounts claimed or used for matching were determined in accordance
with OMB Circular A-87, ``Cost principles for State and local
governments,'' and Attachment F of Circular A-102, ``Uniform
requirements for grants to State and local governments.''
(c) The principal compliance requirements of the largest Federal
aid programs may be ascertained by referring to the Compliance
Supplement for Single Audits of State and Local Governments, issued
by OMB and available from the Government Printing Office. For those
programs not covered in the Compliance Supplement, the auditor may
ascertain compliance requirements by researching the statutes,
regulations, and agreements governing individual programs.
(3) Transactions related to other Federal assistance programs
that are selected in connection with examinations of financial
statements and evaluations of internal controls shall be tested for
compliance with Federal laws and regulations that apply to such
transactions.
9. Subrecipients. State or local governments that receive
Federal financial assistance and provide $25,000 or more of it in a
fiscal year to a subrecipient shall:
a. determine whether State or local subrecipients have met the
audit requirements of this Circular and whether subrecipients
covered by Circular A-110, ``Uniform requirements for grants to
universities, hospitals, and other nonprofit organizations,'' have
met that requirement;
b. determine whether the subrecipient spent Federal assistance
funds provided in accordance with applicable laws and regulations.
This may be accomplished by reviewing an audit of the subrecipient
made in accordance with this Circular, Circular A-110, or through
other means (e.g., program reviews) if the subrecipient has not yet
had such an audit;
c. ensure that appropriate corrective action is taken within six
months after receipt of the audit report in instances of
noncompliance with Federal laws and regulations;
d. consider whether subrecipient audits necessitate adjustment
of the recipient's own records; and
e. require each subrecipient to permit independent auditors to
have access to the records and financial statements as necessary to
comply with this Circular.
10. Relation to other audit requirements. The Single Audit Act
provides that an audit made in accordance with this Circular shall
be in lieu of any financial or financial compliance audit required
under individual Federal assistance programs. To the extent that a
single audit provides Federal agencies with information and
assurances they need to carry out their overall responsibilities,
they shall rely upon and use such information. However, a Federal
agency shall make any additional audits which are necessary to carry
out its responsibilities under Federal law and regulation. Any
additional Federal audit effort shall be planned and carried out in
such a way as to avoid duplication.
a. The provisions of this Circular do not limit the authority of
Federal agencies to make, or contract for audits and evaluations of
Federal financial assistance programs, nor do they limit the
authority of any Federal agency Inspector General or other Federal
audit official.
b. The provisions of this circular do not authorize any State or
local government or subrecipient thereof to constrain Federal
agencies, in any manner, from carrying out additional audits.
c. A Federal agency that makes or contracts for audits in
addition to the audits made by recipients pursuant to this Circular
shall, consistent with other applicable laws and regulations,
arrange for funding the cost of such additional audits. Such
additional audits include economy and efficiency audits, program
results audits, and program evaluations.
11. Cognizant agency responsibilities. The Single Audit Act
provides for cognizant Federal agencies to oversee the
implementation of this Circular.
a. The Office of Management and Budget will assign cognizant
agencies for States and their subdivisions and larger local
governments and their subdivisions. Other Federal agencies may
participate with an assigned cognizant agency, in order to fulfill
the cognizance responsibilities. Smaller governments not assigned a
cognizant agency will be under the general oversight of the Federal
agency that provides them the most funds whether directly or
indirectly.
b. A cognizant agency shall have the following responsibilities:
(1) Ensure that audits are made and reports are received in a
timely manner and in accordance with the requirements of this
Circular.
(2) Provide technical advice and liaison to State and local
governments and independent auditors.
(3) Obtain or make quality control reviews of selected audits
made by non-Federal audit organizations, and provide the results
when appropriate, to other interested organizations.
(4) Promptly inform other affected Federal agencies and
appropriate Federal law enforcement officials of any reported
illegal acts or irregularities. They should also inform State or
local law enforcement and prosecuting authorities, if not advised by
the recipient, of any violation of law within their jurisdiction.
(5) Advise the recipient of audits that have been found not to
have met the requirements set forth in this Circular. In such
instances, the recipient will be expected to work with the auditor
to take corrective action. If corrective action is not taken, the
cognizant agency shall notify the recipient and Federal awarding
agencies of the facts and make recommendations for followup action.
Major inadequacies or repetitive substandard performance of
independent auditors shall be referred to appropriate professional
bodies for disciplinary action.
(6) Coordinate, to the extent practicable, audits made by or for
Federal agencies that are in addition to the audits made pursuant to
this Circular; so that the additional audits build upon such audits.
(7) Oversee the resolution of audit findings that affect the
programs of more than one agency.
12. Illegal acts or irregularities. If the auditor becomes aware
of illegal acts or other irregularities, prompt notice shall be
given to recipient management officials above the level of
involvement. (See also paragraph 13(a)(3) below for the auditor's
reporting responsibilities.) The recipient, in turn, shall promptly
notify the cognizant agency of the illegal acts or irregularities
and of proposed and actual actions, if any. Illegal acts and
irregularities include such matters as conflicts of interest,
falsification of records or reports, and misappropriations of funds
or other assets.
13. Audit Reports. Audit reports must be prepared at the
completion of the audit. Reports serve many needs of State and local
governments as well as meeting the requirements of the Single Audit
Act.
a. The audit report shall state that the audit was made in
accordance with the provisions of this Circular. The report shall be
made up of at least:
(1) The auditor's report on financial statements and on a
schedule of Federal assistance; the financial statements; and a
schedule of Federal assistance, showing the total expenditures for
each Federal assistance program as identified in the Catalog of
Federal Domestic Assistance. Federal programs or grants that have
not been assigned a catalog number shall be identified under the
caption ``other Federal assistance.''
(2) The auditor's report on the study and evaluation of internal
control systems must identify the organization's significant
internal accounting controls, and those controls designed to provide
reasonable assurance that Federal programs are being managed in
compliance with laws and regulations. It must also identify the
controls that were evaluated, the controls that were not evaluated,
and the material weaknesses identified as a result of the
evaluation.
(3) The auditor's report on compliance containing:
--a statement of positive assurance with respect to those items
tested for
[[Page 53723]]
compliance, including compliance with law and regulations pertaining to
financial reports and claims for advances and reimbursements;
--negative assurance on those items not tested;
--a summary of all instances of noncompliance; and
--an identification of total amounts questioned, if any, for each
Federal assistance award, as a result of noncompliance.
b. The three parts of the audit report may be bound into a
single report, or presented at the same time as separate documents.
c. All fraud abuse, or illegal acts or indications of such acts,
including all questioned costs found as the result of these acts
that auditors become aware of, should normally be covered in a
separate written report submitted in accordance with paragraph 13f.
d. In addition to the audit report, the recipient shall provide
comments on the findings and recommendations in the report,
including a plan for corrective action taken or planned and comments
on the status of corrective action taken on prior findings. if
corrective action is not necessary, a statement describing the
reason it is not should accompany the audit report.
e. The reports shall be made available by the State or local
government for public inspection within 30 days after the completion
of the audit.
f. In accordance with generally accepted government audit
standards, reports shall be submitted by the auditor to the
organization audited and to those requiring or arranging for the
audit. In addition, the recipient shall submit copies of the reports
to each Federal department or agency that provided Federal
assistance funds to the recipient. Subrecipients shall submit copies
to recipients that provided them Federal assistance funds. The
reports shall be sent within 30 days after the completion of the
audit, but no later than one year after the end of the audit period
unless a longer period is agreed to with the cognizant agency.
g. Recipients of more than $100,000 in Federal funds shall
submit one copy of the audit report within 30 days after issuance to
a central clearinghouse to be designated by the Office of Management
and Budget. The clearinghouse will keep completed audits on file and
follow up with State and local governments that have not submitted
required audit reports.
h. Recipients shall keep audit reports on file for three years
from their issuance.
14. Audit Resolution. As provided in paragraph 11, the cognizant
agency shall be responsible for monitoring the resolution of audit
findings that affect the programs of more than one Federal agency.
Resolution of findings that relate to the programs of a single
Federal agency will be the responsibility of the recipient and that
agency. Alternate arrangements may be made on a case-by-case basis
by agreement among the agencies concerned.
Resolution shall be made within six months after receipt of the
report by the Federal departments and agencies. Corrective action
should proceed as rapidly as possible.
15. Audit workpapers and reports. Workpapers and reports shall
be retained for a minimum of three years from the date of the audit
report, unless the auditor is notified in writing by the cognizant
agency to extend the retention period. Audit workpapers shall be
made available upon request to the cognizant agency or its designee
or the General Accounting Office, at the completion of the audit.
16. Audit Costs. The cost of audits made in accordance with the
provisions of this Circular are allowable charges to Federal
assistance programs.
a. The charges may be considered a direct cost or an allocated
indirect cost, determined in accordance with the provision of
Circular A-87, ``Cost principles for State and local governments.''
b. Generally, the percentage of costs charged to Federal
assistance programs for a single audit shall not exceed the
percentage that Federal funds expended represent of total funds
expended by the recipient during the fiscal year. The percentage may
be exceeded, however, if appropriate documentation demonstrates
higher actual cost.
17. Sanctions. The Single Audit Act provides that no cost may be
charged to Federal assistance programs for audits required by the
Act that are not made in accordance with this Circular. In cases of
continued inability or unwillingness to have a proper audit, Federal
agencies must consider other appropriate sanctions including:
--Withholding a percentage of assistance payments until the audit is
completed satisfactorily,
--Withholding or disallowing overhead costs, and
--Suspending the Federal assistance agreement until the audit is
made.
18. Auditor Selection. In arranging for audit services State and
local governments shall follow the procurement standards prescribed
by Attachment O of Circular A-102, ``Uniform requirements for grants
to State and local governments.'' The standards provide that while
recipients are encouraged to enter into intergovernmental agreements
for audit and other services, analysis should be made to determine
whether it would be more economical to purchase the services from
private firms. In instances where use of such intergovernmental
agreements are required by State statutes (e.g., audit services)
these statutes will take precedence.
19. Small and Minority Audit Firms. Small audit firms and audit
firms owned and controlled by socially and economically
disadvantaged individuals shall have the maximum practicable
opportunity to participate in contracts awarded to fulfill the
requirements of this Circular. Recipients of Federal assistance
shall take the following steps to further this goal:
a. Assure that small audit firms and audit firms owned and
controlled by socially and economically disadvantaged individuals
are used to the fullest extent practicable.
b. Make information on forthcoming opportunities available and
arrange timeframes for the audit so as to encourage and facilitate
participation by small audit firms and audit firms owned and
controlled by socially and economically disadvantaged individuals.
c. Consider in the contract process whether firms competing for
larger audits intend to subcontract with small audit firms and audit
firms owned and controlled by socially and economically
disadvantaged individuals.
d. Encourage contracting with small audit firms or audit firms
owned and controlled by socially and economically disadvantaged
individuals which have traditionally audited government programs
and, in such cases where this is not possible, assure that these
firms are given consideration for audit subcontracting
opportunities.
e. Encourage contracting with consortiums of small audit firms
as described in paragraph (a) above when a contract is too large for
an individual small audit firm or audit firm owned and controlled by
socially and economically disadvantaged individuals.
f. Use the services and assistance, as appropriate, of such
organizations as the Small Business Administration in the
solicitation and utilization of small audit firms or audit firms
owned and controlled by socially and economically disadvantaged
individuals.
20. Reporting. Each Federal agency will report to the Director
of OMB on or before March 1, 1987, and annually thereafter on the
effectiveness of State and local governments in carrying out the
provisions of this Circular. The report must identify each State or
local government or Indian tribe that, in the opinion of the agency,
is failing to comply with the Circular.
21. Regulations. Each Federal agency shall include the
provisions of this Circular in its regulations implementing the
Single Audit Act.
22. Effective date. This Circular is effective upon publication
and shall apply to fiscal years of State and local governments that
begin after December 31, 1984. Earlier implementation is encouraged.
However, until it is implemented, the audit provisions of Attachment
P to Circular A-102 shall continue to be observed.
23. Inquiries. All questions or inquiries should be addressed to
Financial Management Division, Office of Management and Budget,
telephone number 202/395-3993.
24. Sunset review date. This Circular shall have an independent
policy review to ascertain its effectiveness three years from the
date of issuance.
David A. Stockman,
Director.
Circular A-128 Attachment
Definition of Major Program as Provided in P.L. 98-502
``Major Federal Assistance Program,'' for State and local
governments having Federal assistance expenditures between $100,000
and $100,000,000, means any program for which Federal expenditures
during the applicable year exceed the larger of $300,000, or 3
percent of such total expenditures.
Where total expenditures of Federal assistance exceed
$100,000,000, the following criteria apply:
[[Page 53724]]
------------------------------------------------------------------------
Total expenditures of federal financial assistance Major federal
for all programs assistance
------------------------------------------------------ program means any
program that
more than but less than exceeds
------------------------------------------------------------------------
$100 million.................. 1 billion............ $3 million.
1 billion..................... 2 billion............ 4 million.
2 billion..................... 3 billion............ 7 million.
3 billion..................... 4 billion............ 10 million.
4 billion..................... 5 billion............ 13 million.
5 billion..................... 6 billion............ 16 million.
6 billion..................... 7 billion............ 19 million.
over 7 billion................ ..................... 20 million.
------------------------------------------------------------------------
[FR Doc. 95-25120 Filed 10-16-95; 8:45 am]
BILLING CODE 3410-90-M
