PART 1 - BACKGROUND,
PURPOSE,
AND APPLICABILITY
BACKGROUND
The Single Audit
Act of 1984 established requirements for audits of States, local governments,
and Indian tribal governments that administer Federal financial assistance
programs. In 1985, the Office of Management and Budget (OMB) issued OMB
Circular A-128, "Audits of State and Local Governments," to provide implementing
guidance. In 1990, OMB administratively extended the single audit process
to non-profit organizations by issuing OMB Circular A-133, "Audits of
Institutions of Higher Education and Other Non-Profit Organizations."
On July 5, 1996,
the President signed the Single Audit Act Amendments of 1996 (31 USC Chapter
75). The 1996 Amendments extended the statutory audit requirement to non-profit
organizations and substantially revised various provisions of the 1984
Act. On June 30, 1997, OMB issued final revisions to Circular A-133 (62
FR 35278). The final revisions implement the 1996 Amendments, extend OMB
Circular A-133's coverage to States, local governments, and Indian tribal
governments, and rescind OMB Circular A-128.
This Compliance Supplement
is based on the requirements of the 1996 Amendments and the final revision
of OMB Circular A-133 which provide for the issuance of a compliance supplement
to assist auditors in performing the required audits. The Senate and House
Reports supporting the 1996 Amendments cited studies of the single audit
process performed by the General Accounting Office, the President's Council
on Integrity and Efficiency and the National State Auditors Association
(NSAA). All three studies supported the need for a current compliance
supplement. The NSAA study stated, "The Compliance Supplement provides
an invaluable tool to both Federal agencies and auditors in setting forth
the important provisions of Federal assistance programs. This tool allows
Federal agencies to effectively communicate items which they believe are
important to the successful management of the program and legislative
intent . . . Such a valuable tool requires constant review
and update."
This document serves
to identify existing important compliance requirements which the Federal
Government expects to be considered as part of an audit required by the
1996 Amendments. Without this Supplement, auditors would need to research
many laws and regulations for each program under audit to determine which
compliance requirements are important to the Federal Government and could
have a direct and material effect on a program. Providing this Supplement
is a more efficient and cost effective approach to performing this research.
For the programs contained herein, this Supplement provides a source of
information for auditors to understand the Federal program's objectives,
procedures, and compliance requirements relevant to the audit as well
as audit objectives and suggested audit procedures for determining compliance
with these requirements.
This Supplement also
provides guidance to assist auditors in determining compliance requirements
relevant to the audit, audit objectives, and suggested audit procedures
for programs not included herein. For single audits, this Supplement replaces
agency audit guides and other audit requirement documents for individual
Federal programs.
OMB Circular A-133
provides that Federal agencies are responsible to annually inform OMB
of any updates needed to this Supplement. This responsibility includes
ensuring that program objectives, procedures, and compliance requirements,
noncompliance with which could have a direct and material effect on these
individual Federal programs, are provided to OMB for inclusion in this
Supplement, and that agencies keep current these program objectives, procedures,
and compliance requirements (including statutory and regulatory citations).
To facilitate agency efforts to meet this responsibility, Parts 4 and
5 of this Supplement provide a stand-alone section for each program included
in this Supplement which contains program objectives, program procedures,
and compliance requirements. For some programs a separate subsection (IV.
Other Information), is also included to communicate additional information
concerning the program. For example, when a program allows funds to be
transferred to another program, subsection IV will provide guidance on
how those funds should be treated on the Schedule of Expenditures of Federal
Awards and Type A program determinations. See Appendix IV for a list of
programs which contain this subsection. These individual sections can
be updated or replaced as Federal programs change. Also, sections will
be added for additional programs once the program objectives, program
procedures, and compliance requirements relevant to the program are written.
PURPOSE AND APPLICABILITY
(Part 1)
Purpose
This Supplement is
effective for audits of fiscal years beginning after June 30, 1998, and
supersedes the OMB Circular A-133 Compliance Supplement issued in May
1998.
OMB Circular A-133
describes the non-Federal entity's responsibilities for managing Federal
assistance programs (§ ___.300) and the auditor's responsibility
with respect to the scope of audit (§___.500). Auditors are required
to follow the provisions of OMB Circular A-133 and this Supplement.
Applicability
General
Auditors shall consider
this Supplement and the referenced laws, regulations, and OMB Circulars
(as codified by Federal agencies in agency regulations) in determining
the compliance requirements that could have a direct and material effect
on the programs included herein. That is, use of this Supplement is mandatory.
Accordingly, adherence to this Supplement satisfies the requirements of
OMB Circular A-133. For program-specific audits performed in accordance
with a Federal agency's program-specific audit guide, the auditor shall
follow such program-specific audit guide. Finally, for major programs
not included in this Supplement, the auditor shall follow the guidance
in Part 7 and use the types of compliance requirements in Part 3 to identify
the applicable compliance requirements which could have a direct and material
effect on the program.
Update of Requirements
OMB Circular A-133
provides that Federal agencies are responsible to annually inform OMB
of any updates needed to this Supplement. However, auditors should recognize
that laws and regulations change periodically and that delays will occur
between such changes and revisions to this Supplement. Moreover, auditors
should recognize that there may be provisions of contract and grant agreements
that are not specified in law or regulation and, therefore, the specifics
of such are not included in this Supplement. For example, the grant agreement
may specify a certain matching percentage or set a priority for how funds
should be spent (e.g., a requirement to not fund certain size projects).
Another example is a Federal agency imposing additional requirements on
a recipient because it is high-risk in accordance with the A-102 Common
Rule, or as part of resolution of prior audit findings.
Accordingly, the
auditor should perform reasonable procedures to ensure that compliance
requirements are current and to determine whether there are any additional
provisions of contract and grant agreements that should be covered by
an audit under the 1996 Amendments. Reasonable procedures would be inquiry
of non-Federal entity management and review of the contract and grant
agreements for programs selected for testing (i.e., major programs).
Safe Harbor Status
Because the suggested
audit procedures were written to be able to apply to many different programs
administered by many different entities, they are necessarily general
in nature. Auditor judgment will be necessary to determine whether the
suggested audit procedures are sufficient to achieve the stated audit
objectives or whether additional or alternative audit procedures are needed.
Therefore, the auditor should not consider this Supplement to be
a "safe harbor" for identifying the audit procedures to apply in a particular
engagement.
However, the auditor
can consider this Supplement a "safe harbor" for identification of compliance
requirements to be tested for the programs included herein if, as discussed
above, the auditor (1) performs reasonable procedures to ensure that the
requirements in this Supplement are current and to determine whether there
are any additional provisions of contract and grant agreements that should
be covered by an audit under the 1996 Amendments, and (2) updates or augments
the requirements contained in this Supplement as appropriate.
Responsibility for
Other Requirements
Although the focus
of this Supplement is on compliance requirements that could have a direct
and material effect on a major program, auditors also have responsibility
under Generally Accepted Government Auditing Standards (GAGAS)
for other requirements when specific information comes to the auditors'
attention that provides evidence concerning the existence of possible
noncompliance that could have a material indirect effect on a major program.
OVERVIEW OF THIS
SUPPLEMENT
Matrix of Compliance
Requirements (Part 2)
The Matrix of Compliance
Requirements (Matrix) identifies the Federal programs and compliance requirements
addressed by this Supplement and associates the programs with the applicable
compliance requirements. The Matrix also identifies the applicable Federal
agency and Catalog of Federal Domestic Assistance (CFDA) number for each
program included in this Supplement.
Compliance Requirements
(Part 3)
Part 3 lists and
describes the 14 types of compliance requirements and, except for Special
Tests and Provisions, the related audit objectives that the auditor shall
consider in every audit conducted under OMB Circular A-133, with the exception
of program-specific audits performed in accordance with a Federal agency's
program-specific audit guide. Suggested audit procedures are also provided
to assist the auditor in planning and performing tests of non-Federal
entity compliance with the requirements of Federal programs. Auditor judgment
will be necessary to determine whether the suggested audit procedures
are sufficient to achieve the stated audit objectives and whether additional
or alternative audit procedures are needed. Determining the nature, timing,
and extent of the audit procedures necessary to meet the audit objectives
is the auditor's responsibility.
The compliance requirements
for Special Tests and Provisions are unique to each Federal program; therefore,
compliance requirements, audit objectives, and suggested audit procedures
for Special Tests and Provisions are not included in Part 3.
Because of the diversity
of systems in place among non-Federal entities, Part 3 does not include
suggested audit procedures to test internal control. The auditor must
determine appropriate procedures to test internal control on a case by
case basis considering factors such as the non-Federal entity's internal
control, the compliance requirements, the audit objectives for compliance,
the auditor's assessment of control risk, and the audit requirement to
test internal control as prescribed in OMB Circular A-133.
Agency Program Requirements
(Part 4)
For each Federal
program included, Part 4 discusses program objectives, program procedures,
and compliance requirements which are specific to the program. With the
exception of Special Tests and Provisions, the auditor shall refer to
Part 3 for the audit objectives and suggested audit procedures that pertain
to the compliance requirements associated with the programs. Since Special
Tests and Provisions are unique to the program, the audit objectives and
suggested audit procedures for the program are included in Part 4.
The description of
program procedures is general in nature. Some programs may operate somewhat
differently than described due to: (1) the complexity of governing Federal
and State laws and regulations; (2) the administrative flexibility afforded
non-Federal entities; and, (3) the nature, size, and volume of transactions
involved. Accordingly, the auditor should obtain an understanding of the
applicable compliance requirements and program procedures in operation
at the non-Federal entity to properly plan and perform the audit.
Clusters of Programs
(Part 5)
A cluster of programs
is a grouping of closely related programs that have similar compliance
requirements. The types of clusters are: Research and Development (R&D),
Student Financial Aid (SFA), and other clusters. "Other clusters" are
as identified in this Supplement or designated in a State award document.
Although the programs
within a cluster are administered as separate programs, a cluster of programs
is treated as a single program for the purpose of meeting the audit requirements
of OMB Circular A-133 (§__.105). Part 5 provides compliance requirements,
audit objectives, and suggested audit procedures for R&D and SFA clusters
and lists other clusters.
In planning and performing
the audit, the auditor should determine whether programs administered
by the non-Federal entity are part of a cluster by referring to the provisions
of Part 5 of this Supplement and the State award documents.
Internal Control
(Part 6)
As a condition of
receiving Federal awards, non-Federal entities agree to comply with applicable
laws, regulations, and the provisions of contract and grant agreements,
and to maintain internal control to provide reasonable assurance of compliance
with these requirements. OMB Circular A-133 requires auditors to obtain
an understanding of the non-Federal entity's internal control over Federal
programs sufficient to plan the audit to support a low assessed level
of control risk for major programs, plan the testing of internal control
over major programs to support a low assessed level of control risk for
the assertions relevant to the compliance requirements for each major
program, and, unless internal control is likely to be ineffective, perform
testing of internal control as planned. Part 6 is intended to assist non-Federal
entities and their auditors in complying with these requirements by presenting
characteristics of internal control which may be used to reasonably ensure
compliance with the types of compliance requirements in Part 3. The characteristics
of internal control presented in Part 6 are neither mandatory nor all
inclusive.
Guidance for Auditing
Programs Not Included in this Compliance Supplement (Part 7)
Part 7 provides guidance
to auditors in identifying the compliance requirements and designing tests
of compliance with such requirements for programs not included in this
Supplement.
Federal Programs
Excluded from the A-102 Common Rule (Appendix I)
This Appendix lists
block grants and entitlement programs excluded from the requirements of
the "Uniform Administrative Requirements for Grants and Cooperative Agreements
to State and Local Governments" (also known as the "A-102 Common Rule").
Federal Agency Codification
of Certain Governmentwide Grants Requirements (Appendix II)
This Appendix provides
regulatory citations and Federal agencies' codification of the A-102 Common
Rule and OMB Circular A-110, "Uniform Administrative Requirements for
Grants and Agreements With Institutions of Higher Education, Hospitals,
and Other Non-Profit Organizations," in agency regulations. Some agencies
have not yet codified the November 1993 revision to OMB Circular A-110
but either are in the process of doing so or have provided such policies
to grantees through other means such as grant agreements.
Federal Agency Contacts
for A-133 Audits (Appendix III)
This Appendix identifies
Federal agency contacts from which auditors can request information or
materials about Federal programs or the audit requirements of OMB Circular
A-133.
Internal Reference
Tables (Appendix IV)
This Appendix provides
a listing of programs in Parts 4 and 5 which include "IV. Other Information."
This listing allows the auditor to quickly determine which programs have
other information such as guidance on Type A and Type B program determination
or display on the Schedule of Expenditures of Federal Awards. Also identified
in this Appendix is that the Medicaid Cluster is the only program currently
identified as higher risk by OMB pursuant to Circular A-133, §___.525(c)(2).
List of Changes
for the 1999 Compliance Supplement - Appendix V
This Appendix provides
a list of changes from the OMB Circular A-133 Compliance Supplement issued
in May 1998 to this 1999 Supplement.
Advisory to Federal
Grantees on Responsibility to Address the Year 2000 Issue - Appendix VI
This Appendix provides
a copy of an OMB advisory concerning the Year 2000 Issue.
TECHNICAL INFORMATION
Page Numbering Scheme
The following page
numbering scheme is used in this Supplement to facilitate future revisions.
Each page included
in Parts 1, 2, 3 (introduction), 6 (introduction), and 7 is identified
by a label that represents the part number and sequential page number.
A dash (-) separates the part number from the page number. For example,
Part 1 is numbered as follows: 1-1, 1-2, 1-3, and so on.
Each page included
in Parts 3 (excluding introduction), 4, 5, and 6 (excluding introduction)
is identified by a label that represents the part number, section number
identifier, and sequential page number. For example, Section A of Part
3 is numbered 3-A-1, 3-A-2, 3-A-3, and so on. The section number identifier
for Part 4 represents the CFDA number of the applicable program. For example,
the Department of Labor (DOL) Unemployment Insurance program, CFDA number
17.225, is numbered 4-17.225-1, 4-17.225-2, 4-17.225-3, and so on.
Code of Federal Regulations
The Code of Federal
Regulations (CFR) is a codification of the rules issued by Federal agencies.
The CFR is divided into 50 titles which comprise the broad areas subject
to Federal regulation. Each title is further divided into parts and sections,
with most references to the CFR being made at this level.
Portions of the CFR
are revised daily and these changes are published in the Federal Register.
However, a revised version of the CFR is published only once each calendar
year, on a quarterly basis as follows: titles 1-16 on January 1, titles
17-27 on April 1, titles 28-41 on July 1, and titles 42-50 on October
1.
In the event that
changes to a particular section of a title have changed since the last
published update of that section, a notation is made in the List of CFR
Sections Affected (LSA), which is published monthly. The LSA cites the
Federal Register page number which contains the changes to the CFR section.
In order to obtain
the most current regulations, the user should consult not only the latest
version of the CFR, but also the LSA issued in the current month. The
Federal Register home page (http://www.access.gpo.gov/nara/) offers links
to both the Federal Register and the CFR. Please note that on-line versions
of the CFR may not be the most current available.
HOW TO OBTAIN ADDITIONAL
GUIDANCE
Guidance to assist
auditors in performing audits in accordance with OMB Circular A-133 can
be obtained from the following sources.
Office of Management
and Budget
The following information
is located under the grants management heading on OMB's Internet home
page (/OMB).
- OMB publications,
including OMB Circulars and this Supplement for audits under OMB Circular
A-133.
- SF-SAC, Data
Collection Form for Reporting on Audits of States, Local Governments,
and Non-Profit Organizations.
- Codification
of Certain Governmentwide Grants Requirements by Department (including
the Grants Management Common Rule and OMB Circular A-110)
General Services
Administration (GSA)
Federal Domestic Assistance Catalog Staff (MVS)
General Services Administration
Ground Floor, Reporters Building
300 7th Street, S.W., Washington, DC 20407
Telephone: (202) 708-5126
- Catalog of
Federal Domestic Assistance (CFDA).
A searchable copy
of the CFDA is available through the Internet on the GSA Home Page (http://www.gsa.gov/fdac).
The CFDA is also available in hard copy (from the Government Printing
Office), and on machine-readable magnetic tape, high-density floppy diskettes,
and CD-ROM (from GSA).
Government Printing
Office (GPO)
Superintendent of Documents
P.O. Box 371954
Pittsburgh, PA 15250-7954
Telephone: (202) 512-1800
- Catalog of
Federal Domestic Assistance.
- Government Auditing Standards (stock number 020-000-00-265-4).
- April 1999 Circular A-133 Compliance Supplement (041-001-00522-6).
Inspectors General
IGnet Home Page on
the Internet (http://www.ignet.gov).
- Inspector
General Directory.
- Government Auditing Standards.
- Inspector General Act.
- Single Audit Home Page.
- Virtual Library.