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Major audit changes ahead for organizations receiving federal grants.

As part of the push for federal grant reform, the U.S. Office of Management and Budget (OMB) recently finalized changes to Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The OMB released the changes in December 2013 in its guidelines, "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards" (Uniform Grant Guidance).

The changes reflect some of the most significant reporting updates for organizations that receive federal grants since the creation of the A-133 Single Audit. Eight OMB Circulars, including A-133, have been combined into one "super circular" that takes effect for organizations beginning with December 31, 2015 year-ends. Now considered Subpart F of the Uniform Grant Guidance, A-133 requirements underwent a number of changes to allow for more regulatory focus on larger, riskier programs and organizations. Changes to audit requirements accompanied these updates. A more detailed explanation of some of these changes follows. Organizations subject to A-133 requirements should note the full list of updates to the OMB Circulars and consider their impact on future audits. Threshold for Single Audit

Perhaps the biggest change in the new guidelines stems from the increased threshold requirements for the Single Audit. To allow for more attention on the larger, riskier organizations, OMB issued guidelines that will reduce the number of organizations subject to the audit requirement.

Under current regulations, state, local governments and not-for-profit organizations that expend more than $500,000 in federal grants per fiscal year are required to undergo an A-133 audit. The new guidance raises the minimum threshold to $750,000. Because of the threshold increase, an estimated 5,000 organizations will no longer be subject to the audit requirement.

Risk Assessments

Type A/B Major Program Threshold

For risk assessment purposes, OMB Circular A-133 classifies major programs as Type A programs, which are the larger programs, or as Type B, which are programs on the smaller side. The newly released guidance increases the Type A/B threshold from $300,000 to $750,000 for organizations that spend between $750,000 and $25 million in total federal awards per fiscal year; with higher thresholds for higher levels of Federal grant expenditures. This change may reduce the number of programs considered major and therefore fewer programs may require the audit.

Other than decreasing the number of programs classified as Type A, the change in the new guidelines reflects a move toward more consistency. Circular A-133's Single Audit requirement threshold was raised from $300,000 to $500,000 in 2004, but the Type A/B threshold was not adjusted at that time. This new threshold more closely resembles the threshold change in the Single Audit requirement.

Type A/B Audit Requirements

Type A programs are required to undergo an audit if they have not been audited or tested as a major program in the past two audit cycles. The new guidelines also dictate that programs will be considered high risk and tested as a major program if:

* There was a material weakness identified in the previous audit,

* There was a modified opinion on compliance, or

* If it is known or is likely that questioned costs exceeded 5 percent of the programs funded by federal grants.

This focus on areas with internal control deficiencies could mean that entities with strong internal controls and few audit findings could have fewer programs audited.

Percentage of Coverage

Minimwn coverage rules for the percentage of federal awards that must be audited also changed under the new Uniform Grant Guidance. For entities meeting the low-risk criteria noted above, the percentage of audit coverage dropped from 25 percent to 20 percent. Entities not meeting the low-risk criteria now have a percentage of audit coverage of 40 percent, which is down from 50 percent in the current A-133 rules. The lowered percentage-of-coverage requirements could reduce the number of programs being audited.

Further Changes

The above regulatory changes will likely not be the only modifications OMB makes to its compliance regulations. A preview of the OMB's modified 2015 compliance requirements is expected to appear in the 2014 OMB Circular A-133 Compliance Supplement, which should be released shortly. We will keep organizations up-to-date on the modified requirements. In the meantime, learn more about the OMB changes through this CBIZ MHM webinar or by contacting your local CBIZ MHM office.

Mary Kay Griffin, Managing Director I CBIZ MHM, LLC Salt Lake City

Mary Kay Griffin is a Managing director at CBIZ MHM, LIZ and Shareholder of Mayer Hoffman 6, McCann P.C. Her practice emphasis is in the areas of taxation, financial accounting and business consulting. Among Mary Kay's industry expertise is an in-depth knowledge and experience in nonprofit organizations. Mary Kay received the UACPA

"Women to Watch" award given to professionals who have advanced to a higher level of professional leadership and demonstrated exceptional services to the CPA profession and the community.

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2   Hess Corporate         (801) 292-8687    150 N. Main  1985
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2   Hess Corporate          $141.0

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5   Columbus Travel          $25.0

6   Snelgrove Travel         $21.8
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7   Cruise & Travel          $18.9

8   Destinations, Inc.       $18.8

9   Thomas Travel            $11.0

10  Wren & Fida              $10.0

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Title Annotation:Voices
Comment:Major audit changes ahead for organizations receiving federal grants.(Voices)
Author:Griffin, Mary Kay
Publication:Utah Business
Date:Aug 1, 2014
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