May 2018 – Federal Funding Compliance: Best Practices for All Organizations

Hui-Ting Grady, CPA  and Olga Yasinnick CPA, MBA  from AAF CPA’s gave a presentation about what you need to know if your organization receives Federal funds, is hoping to do so, or simply wishes to use the federal regulations as a standard for “best practices.”  Hui-Ting has extensive experience providing assurance solutions to diverse nonprofit organizations, including: affordable housing development projects with HUD requirements, multi-service human & social services providers, and behavioral health agencies. Olga specializes in driving high-energy audit teams, and advising sophisticated nonprofit organizations, including multi-services human & social services providers, community development corporations (CDCs) and their affordable housing development projects.

If your agency receives less than $750K in Federal funding, through Direct Federal funding, pass through the State, or pass through another organization, you are subject to the traditional GAS yellow book audit. Organizations are subject to the Federal Single Audit standards if they receive $750K or more in Federal funds in a fiscal year, either directly or indirectly. The funding could be cash or noncash awards. OMB A-133 Compliance Supplement is an extensive United States Federal government guide created by the Office of Management and Budget (OMB) and was originally created in 1996.  It is used in auditing federal assistance and federal grant programs, as well as their respective recipients. It is considered to be the most important tool of an auditor for a Single Audit. It serves to identify existing important compliance requirements that the Federal Government expects to be considered as part of a Single Audit.

For December 31, 2015, year-ends and beyond

    • All single audits performed under Subpart F of the Uniform Guidance
    • Auditees comply with the new administrative requirements and cost principles for federal awards made on or after December 26, 2014, and to incremental funding made on or after that date
    • Auditees comply with the “old” OMB administrative requirements and cost principles for awards made prior to December 26, 2014, until those funds run out
    • With regard to subawards, the effective date of the Uniform Guidance is the same as the effective date of the federal award from which the subaward is made
    • Auditor compliance testing will test against both the old criteria and the new criteria depending on federal award dates

New procurement standards go into effect for those agencies with a year end of 12/31/17 on 1/1/18, and for 6/30 year end, on 7/1/18. It is the auditees’ responsibility to prepare a complete Schedule of Expenditures of Federal Awards (SEFA) and to comply with all OMB A-133 standards, regulations, and audit report requirements, and to have a strong system of Internal Controls.  As much as possible, try to segregate Federal funding from other sources of funds.  If you are a contractor/vendor that receives Federal funds, then you do not have to comply.  If your organization is a sub-recipient, then you have to comply.  Generally, it you should comply with the standards even if you receive less than $750K in Federal funds, but you are not subject to the more expensive and extensive audit.

There are usually some changes to the regulations annually, which are listed in the Compliance Supplement. Part 3 lists Compliance Requirements, and Part 4 lists Agency Program Requirements (specific to the Federal program).  Internal controls are included in Part 3.  For effective internal controls, there are five major components:  1) Control of the environment 2) Risk Assessment 3) Contract Activities 4) Information and Communication, and 5) Monitoring.  Part 3 also identifies and describes the 12 types of compliance requirements where noncompliance may have a direct and material effect on a Federal program and provides audit objectives and suggested audit procedures. The 12 types of compliance requirements are: A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D. (Reserved) (Note: Some agencies have made Davis-Bacon Act (Wage Rate Requirements) a Special Test and Provision; see 20.001 in Part 4 for a cross-cutting section addressing Wage Rate Requirements.) E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort, Earmarking H. Period of Performance I. Procurement and Suspension and Debarment J. Program Income K. (Reserved) L. Reporting M. Subrecipient Monitoring N. Special Tests and Provisions.

At the end of the process, the auditors will issue a set of Financial Statements in Accordance with Government Auditing Standards and Uniform Compliance. You will have to file a Data Collection Form also. If your auditors have detected any material weaknesses or issues a material finding in the course of their A-133 audit, then your organization will be required to file and implement a Corrective action Plan.