Are You Ready for Your Upcoming Single Audit? The OMB Compliance Supplement Can HelpBy John D'Amico | July 1, 2019
If your organization receives and expends federal grant funds of $750,000 or more in their fiscal year, either received directly from a federal agency or passed through from either a local government or from another nonprofit, it is subject to a Single Audit under Uniform Guidance.
Your auditors must use the Office of Management and Budget (“OMB”) Compliance Supplement (“the Supplement”) to perform their audit, so why not know ahead of time what they will be looking for and testing? It’s like the teacher giving you the answer key before the test!
The Supplement has very useful information that can help recipients of federal grants understand the regulations and requirements of the federal program. Most federal programs have a specific Catalog of Federal Domestic Assistance (“CFDA”) number. CFDA numbers are the system for identifying and sorting the 2,000 plus federal programs. Each CFDA number contains five digits and appears in the following format: ##.### (e.g. 10.001). The first two digits signify the federal agency.
When it is time for your audit, the auditors will be testing your compliance with the federal rules and regulations based upon the CFDA number of the federal program. Not all federal programs are included in the Supplement, but many of the large and most common federal programs are included. The Supplement includes specific audit programs for numerous federal programs that auditors must use to perform their Single Audit tests. It details the audit objectives and suggested audit procedures that the auditor should perform.
Your auditors will also be tasked with determining whether your organization has the proper internal controls over compliance in place, and, by testing those controls, determine if they are working effectively. The information included within the Supplement can assist in ensuring ahead of time that your organization has the proper controls and procedures in place to comply with the federal requirements.
The Supplement is updated annually by OMB on behalf of all the federal agencies. It consists of seven parts and nine appendices. The seven parts of the Supplement are:
- Part 1 – Background, Purpose and Applicability. This part contains general Single Audit information.
- Part 2 – Matrix of Compliance Requirements. Part 2 identifies which of the twelve types of compliance requirements are applicable to the federal programs included in this supplement.
- Part 3 – Compliance Requirements. Part 3 includes the generic program objectives and audit procedures pertaining to the twelve types of compliance requirements.
- Part 4 – Agency Program Requirements. Part 4 contains the specific program objectives and procedures by federal agency and CFDA number. When any of these five types of compliance requirements are applicable to a program (Activities Allowed or Unallowed; Eligibility; Matching, Level of Effort, Earmarking; Reporting; and Special Tests and Provisions), Part 4 will always provide information specific to the program. The other seven types of requirements are not specific to a program and therefore not included again in Part 4 as they are in Part 3.
- Part 5 – Clusters of Programs. Part 5 identifies those programs that are to be considered clusters of federal programs
- Part 6 – Internal Control. Part 6 describes characteristics of internal control relating to each of the five components of internal control.
- Part 7 – Guidance for Auditing Programs not Included in this Compliance Supplement. Part 7 states that for those programs not covered in the Supplement, the auditor must use the twelve types of compliance requirements described in Part 3.
The Supplement contains detailed information about the twelve types of compliance requirements and the suggested audit procedures that your auditors will be performing to determine if your organization is in compliance.
The Supplement also contains the following useful information for organizations receiving federal grant funds:
- Activities Allowed or Unallowed – These are the activities that the federal program has determined the funds can be used for or cannot be used for. Since this is very specific to each federal program, it is included in the audit program in Part 4.
- Allowable Costs – This describes the types of costs that can be charged to a federal program. Generally, only necessary and reasonable costs can be charged to a federal program. There are, however, certain costs that are unallowed to be charged to a federal program, such as: fines, penalties, bad debt, tobacco and alcohol. Part 3B of the Supplement has an extensive list of selected items of cost and whether they are unallowable, allowable, or allowable with restrictions.
- Cash Management – Most federal programs are either funded on a reimbursement basis, advances or a combination of both. For advances, the organization must minimize the time elapsing between the receipt of the funds and the disbursements. For reimbursements, the organization must pay for the program costs with their own funds prior to requesting reimbursement. See Part 3C for the full details.
- Eligibility – This relates to beneficiary eligibility, not organizational eligibility. The specific requirements for eligibility are unique to each federal program. See the eligibility requirements for your federal program in Part 4.
- Equipment and Real Property Management – This requirement only applies if equipment or real property is purchased with federal grant funds of over $5,000 or more, or over the organization’s capitalization policy. See Part 3F for the requirements.
- Matching, Level of Effort, Earmarking – The specific requirements for these are unique to each federal program. See the specific requirements for your federal program in Part 4.
- Period of Performance – Federal grants may specify a time period during which the organization may use the federal funds. Where a funding period is specified, the organization may charge to the award only costs resulting from obligations incurred during the funding period and any preawards authorized by the Federal awarding agency. See Part 3H for the requirements.
- Procurement – The new procurement standards included in Uniform Guidance are now in effect for fiscal years beginning after December 26, 2017. Organizations must use their own documented procurement procedures, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in Uniform Guidance as set out in Title 2 CFR sections 200.318 through 200.326. The micro-purchase method is for procurements where the aggregate dollar amount does not exceed $3,500 (subsequently increased to $10,000). The small purchase method is for procurements that exceed the micro-purchase amount, but do not exceed the simplified acquisition method of $150,000 (subsequently increased to $250,000). For procurements exceeding the simplified acquisition threshold, the organization must use one of the following procurement methods: sealed bids, competitive proposal or sole source. See Part 3I for full details.
- Suspension and Debarment – Organizations are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” includes contracts awarded under a grant or cooperative agreement that are expected to equal or exceed $25,000. All non-procurement transactions entered into by a pass-through entity, irrespective of award amount, are considered covered transactions. See Part 3I for full details.
- Program Income – Program income is the gross income earned by an organization that is directly generated by a supported activity or earned as a result of the federal award. It is generally fees charged to participants in the federal program. It can also be interest earned on loans made with federal award funds. Program income does not include interest earned on advances of federal funds or the proceeds from the sale of equipment or real property acquired with federal funds. See Part 3J for full details. •
- Reporting – This requirement relates to the reporting required to the federal agency or to the pass-through agency. It includes financial reporting (requests for advances or reimbursements), performance and special reporting. The specific requirements for reporting are unique to each federal program. See the reporting requirements for your federal program in Part 4.
- Subrecipient Monitoring – This requirement is applicable if an organization passes the federal funds through to another organization that will be running the federal program on their behalf. The organization that passes through the funds must identify the award and applicable requirements to the other entity, evaluate the risk of their noncompliance and monitor their activities. See Part 3M for full details.
- Special Tests and Provisions – The specific requirements for Special Tests and Provisions are unique to each federal program. See the specific requirements for your federal program in Part 4.
Organizations that wish to use the OMB Compliance Supplement to ensure that their audit goes smoothly should first look to see if their specific federal program is included in the Supplement by looking up the CFDA number in Part 2, the Matrix of Compliance Requirements. If the CFDA number is in Part 2, it means that the federal agency wrote a specific audit program for that program and it is included in either Part 4 or Part 5 of the Supplement. The organization should then access Part 4 for more details on the specific requirements that their auditors will be testing and Part 2 to identify the applicable compliance requirements for which their auditors will use Part 3, generic audit procedures.
The 2018 Supplement can be accessed here.
If your federal program is not included in the Supplement, you can look up information by CFDA number on https://beta.sam.gov/. On this website you can obtain the objectives of the program, the use of the assistance information, information of compliance requirements and contact information at the federal agency to obtain additional information
The 2019 OMB Compliance Supplement has not been issued, however, OMB has advised that there will be significant changes, as they have mandated that for each federal program included in the 2019 Supplement, only six out of the twelve compliance requirements will be subject to audit. The federal agencies have already decided which of the six requirements will be subject to audit for each of their programs; to see this information, click here and select the Part 2 Matrix to find your program(s) by CFDA number.
About John D'Amico
John D'Amico, CPA, is a Director with the Professional Standards Group at Marks Paneth LLP and provides quality control services to the firm's Nonprofit, Government & Healthcare Group. He specializes in quality reviews of nonprofit organizations' audits and is part of a team that reviews all attest engagements, provides consultation on accounting and attestation matters, tests and monitors the firm's quality review policies and procedures. He also develops and delivers training material related to accounting... READ MORE +