The Recovery Act: Information You Need to Plan and Perform Your 2010 Single Audits

1. The Recovery Act: Information You Need to Plan and Perform Your 2010 Single Audits A GAQC Web Event May 19, 2010

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5. Today’s Presenter • Mandy Nelson, CPA • KPMG LLP • Moderating: • Mary Foelster, CPA • AICPA

6. Today’s Agenda • ARRA – American Recovery and Reinvestment Act • 2010 Compliance Supplement – Appendix VII (draft) • Identification of ARRA expenditures • Separate ARRA presentation • ARRA Major Program Determination • Other Appendix VII Issues • 2010 Compliance Supplement (CS) This presentation is based on the most recent drafts of the 2010 CS and discussions with OMB as of May 13, 2010

7. ARRA – American Recovery and Reinvestment Act of 2009

8. American Recovery and Reinvestment Act of 2009 (ARRA) (The Recovery Act) • The American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5) (ARRA) and the related OMB Guidance have significant implications for audits performed under OMB Circular A-133. The ARRA imposes new transparency and accountability requirements on Federal awarding agencies and their recipients.

9. American Recovery and Reinvestment Act of 2009 History to Date: Recovery Act passed February 2009; significant impact expected for 2010 and 2011 year-end audits Accountability and Transparency are key features of the law QCRs built into the OMB guidance – results to be placed on Recovery.gov (unclear how this will be done) Auditees significantly affected by Section 1512 reporting New body, Recovery Act Transparency Board (RATB), monitoring activity and looking for fraud, waste, and abuse Much more interest in single audits by federal agencies and Congress

10. ARRA and CFDA Numbers Federal agencies are required to specifically identify ARRA awards, regardless of whether the funding is provided under a new or existing CFDA number. The CFDA number should be included in the grant award documents.

11. ARRA Programs not subject to A-133 Build America Bonds Subsidy payment should not be included on the Schedule of Expenditures of Federal Awards (SEFA) therefore not included in the scope of the single audit. COBRA Tax credits to employers should not be presented by auditees on the SEFA, and they should not be included in the scope of the single audit.

12. 2010 Compliance Supplement – Appendix VII (draft) This information is based on the most recent drafts of the 2010 CS and discussions with OMB as of May 13, 2010

13. Identification of ARRA Funding Early identification is critical Should be separate award Revised terms and conditions Subrecipients – more challenging Client should separately track ARRA expenditures

14. Identification of ARRA Funding Direct recipients – Look to: CDFA # Federal awards terms Stating ARRA funded Requiring separate SEFA presentation Requiring notification of ARRA funding to1st tier subrecipients At sub-award dates At disbursement of funds

15. Identification of ARRA Funding 1st tier subrecipients - Look to: CFDA # Awards terms Stating ARRA funded Requiring separate SEFA presentation

16. Identification of ARRA Funding Lower tier subrecipients Look to CFDA # Award terms stating ARRA funding Separate SEFA presentation required by Appendix VII

17. Separate ARRA Presentation Separate presentation on Schedule of Expenditures Federal Awards (SEFA) Even if same CFDA # New level of detail for Research and Development (RD) Separate presentation on Data Collection Form (DCF) Revised DCF

18. Single Audits for Periods Ending Before June 30, 2010 2009 Compliance Supplement, Appendix VII Addendum #1 to 2009 Compliance Supplement – Issued August 2009 GAQC Alert #123 – Clarifying Guidance on Effect of Recovery Act Funds on Major Program Determination

19. Single Audits for Periods Ending on/after June 30, 2010 Impact of Recovery Act on 2010 Compliance Supplement: Guidance from 2009 CS Addendum #1 incorporated (e.g., in Part 3) Updated Appendix VII Low-Risk Auditee Status Extensions Loans Major program determination for ARRA funded awards Part 3, 4, and 5

20. Low Risk Auditee and Extensions M-10-14, Updated Guidance on the American Recovery and Reinvestment Act (March 22, 2010) - See also GAQC Alert #141 “Due to the importance of the Single Audits and the reliance of Federal agencies on the audit results to monitor the accountability of Recovery Act programs, agencies should not grant any extension request to grantees for fiscal years 2009 through 2011. In order to meet the criteria for a low-risk auditee (OMB Circular A- 133 §__.530) in the current year, the prior two years audits must have met the requirements of OMB Circular A-133, including report submission to the FAC by the due date (OMB Circular A-133 § __.320).”

21. When applying the risk-based approach to determine which Federal programs are major programs: The inclusion of large loan and loan guarantees (loans) should not result in the exclusion of other programs as Type A programs. When a Federal program providing loans significantly affects the number or size of Type A programs, the auditor shall consider this Federal program as a Type A program and exclude its values in determining other Type A programs. Impact of Loan Programs

22. Impact of Loan Programs Safe Harbor for Treatment of a Large Loan and Loan Guarantee Programs in Type A Program Determination Each individual loan and loan guarantee program that does not exceed four times the largest non-loan program is not considered to be large.

23. Impact of Loan ProgramsExample #1 University Step 1 – Identify the largest non-loan program: 

24. Step 2 – Calculate if loan program is greater than 4X largest non-loan program: Impact of Loan Programs Example #1 University (Continued)

25. Impact of Loan ProgramsExample #1 University (Continued) Step 3 – Calculate Type A Threshold * Calculated to be $69,000, therefore defaulted to minimum of $300,000

26. Impact of Loan Programs Example #2 Governmental Entity Step 1 – Identify the largest non-loan program: 

27. Impact of Loan Programs Example #2 Governmental Entity (Continued) Step 2 – Calculate if loan program is greater than 4X largest non-loan program:

28. Impact of Loan Programs Example #2 Governmental Entity (Continued) Step 3 – Calculate Type A Threshold

29. Clusters of programs specifically listed in the Supplement with a new ARRA CFDA number added during the current year that also has current year expenditures, should be considered a new program and would not qualify as a low-risk Type A program Cluster will not meet the requirement of having been audited as a major program in at least one of the two most recent audit periods as the Federal program funded under the ARRA did not previously exist. The Research and Development cluster (R&D) is not subject to this guidance due to its nature (e.g., CFDA numbers are not listed in Supplement for R&D and in some cases R&D is not assigned a CFDA number). The Student Financial Aid (SFA) Cluster is also not subject to this guidance Effect of ARRA Awards on Major Program Determination - Clusters

30. Effect of ARRA Awards on Major Program Determination - Type A Programs Even though a Type A program otherwise meets the criteria as low-risk under Section 520(c) of OMB Circular A-133, due to the inherent risk associated with the transparency and accountability requirements governing expenditures of ARRA awards, any program or cluster with expenditures of ARRA awards would not qualify as a low-risk Type A. Even a de minimus amount of ARRA expenditures would not support identifying the program as low risk. See next slide for exception. However SFA is excluded from this guidance

31. Effect of ARRA Awards on Major Program Determination -Type A Programs (Continued)

32. Effect of ARRA Awards on Major Program Determination – Type A Example 2009 State Fiscal Stabilization Fund (SFSF) • Audited as a Major Program • No Control Deficiencies • No Noncompliance 2010 State Fiscal Stabilization Fund (SFSF) Can this be assessed as a low risk Type A in 2010? Did not meet 1 of the 4 criteria to be assessed as low risk: (3) current year ARRA expenditures are more than 20% of program cluster [since 100% of expenditures are ARRA]

33. Effect of ARRA Awards on Major Program Determination - Type B Programs The auditor should consider all Type B programs and clusters with expenditures of ARRA awards to be programs of higher risk in accordance with Section 525(d) of OMB Circular A-133. The presumption is that Type B programs or clusters with ARRA expenditures would be audited as major when applying the provisions of Section 520(e)(2). However, the auditor is not precluded from selecting an especially risky Type B program that does not contain ARRA expenditures to audit as a major program in lieu of a Type B program or cluster with ARRA expenditures.

34. Appendix VII (draft): SFA and Major Program Determination Appendix VII section: Effect of Expenditures of ARRA Awards on Major Program Determination Clusters of Programs -- SFA Excluded Type A Programs With ARRA Expenditures -- SFA Excluded Use pre-ARRA rules for risk assessment

35. 2010 Compliance Supplement (CS)

36. Reporting Testing1512 reports Subrecipient monitoring Verification of subrecipients filing their A-133’s with Clearinghouse Strong push on identifying pass-through entity information on SEFA and amounts passed-through in SEFA footnotes 2010 Compliance Supplement - Part 3 Changes

37. Part 4 Incorporated information from 2009 Addendum #1 Part 5 Many new clusters and additions to existing clusters 2010 Compliance Supplement - Parts 4 and 5 Changes

38. Remember R&D definition in Section .105 Very broad NSF believes its programs are RD Based on its CFDA #’s NSF acknowledges rare instances can arise where not R&D. Clients need to carefully read award agreement. 2010 Compliance Supplement – R&D Changes (draft)

39. Exempt from ARRA provisions for separate presentation Likely will require an extra item in representation letter regarding whether college is under Zone Alternative Changes to FFELP will generally be a 2011 single audit issue. 2010 Compliance Supplement - SFA Changes (draft)

40. Electronic medical records In discussions with HHS due to unusual funding pattern Energy grants to for-profits Likely need program-specific audits Pre-award certifications Generally not possible under auditing standards Determining if new/unusual programs are subject to Single Audit Other Future ARRA Issues

41. Questions ???