OMB issues final audit requirement for federal awards.

The Office of Management and Budget released final audit requirements for not-for-profits and state and local governments that administer federal financial assistance. The revisions to Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, implement new rules under the Single Audit Act Amendments of 1996, which was passed last summer (see "President Signs Single Audit Act of 1996," JofA, Sept.96, page 15).

The 1996 act eased the auditing burdens on smaller entities that administer federal grants by increasing the threshold that triggers an audit requirement, and it improved the oversight of federal grants by focusing on programs that present the greatest risk to the government. the act also permitted the consolidation of OMB Circular A-128, audits of State and Local Government, with circular A-133, the final revisions to which encompass both sets of entities that administer federal awards.

Auditor musts

One of the most significant changes for the auditor in the revised A-133 is the new requirement to prepare and sign a data collection form. The form will be used by the federal government to develop a database on federal awards and by the federal clearing-house in lieu of sending the full single audit report. "The entity being audited is required to certify the entire form is complete and accurate," said Sheila O. Conley, OMB policy analyst. "For the first time the auditor must prepare certain section of the form and must sign the form at the end of every audit conducted in accordance with A-133."

Another significant change in A-133 includes an explanation of the types of procedures that qualify as limited-scope audits for purposes of monitoring subrecipients that spend less than $300,000 annually. Limited scope audits are defined to include only agree-upon procedures paid for and arranged by a pass-through entity. The procedures only can relate to activities allowed or unallowed; allowable costs/cost principles; eligibility; matching, level of effort earmarking; and reporting.

The OMB removed a provision from the A-133 proposal that explained the auditor's responsibility for testing and reporting on the allowability of costs charged to cost pools used in formulating indirect cost rate proposals and cost allocation plans. According to Conley, many people thought the OMB had elevated the indirect cost area to the status of a major program. "That was not out intention," said Conley. "Therefore, we removed that language from A-133 and dealt with the auditor's responsibility for auditing indirect costs in the circular A-133 compliance supplement."

The OMB chose not to amend A-133 language that requires auditors to test internal control over major programs. Conley said the OMB did not change the language because federal agencies are concerned there is not enough internal control testing in a single audit. "The circular should remain very explicit about the auditor's responsibility for testing internal control over major programs," said Conley.

Successful implementation

The OMB also issued a provisional compliance supplement for use in the first audits conducted in accordance with the revised circular. The supplement identifies the compliance requirements that should be considered by the auditor during an A-133 audit. The OMB is requesting comment on the compliance supplement by November 30. Both the revised circular A-133 and the compliance supplement can be obtained on the OMB Web site at http://www.whitehouse. gov/WH/EOP/omb, under the captions "OMB Documents" and "Grants Management," or by calling the OMB Office of Administration at 202-395-7332.

The American Institute of CPAs is expected to issue a statement of position in the fall on the revised circular A-133. The SOP will supersede SOP 92-9, Audits of Not-for-Profit Organizations Receiving Federal Awards, and certain chapters in the AICPA state and local audit guide. For more information on the AICPA guidance, contact Mary Foelster, technical manager, at 202-434-9259.