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$29a.6 Frequency of audit.
Audits shall be made annually unless the State or local government has, by January 1, 1987, a constitutional or statutory requirement for less frequent audits. For those governments, the Cognizant agency shall permit biennial audits, covering both years, if the government; SO requests. It shall also honor requests for biennial audits by governments that have an administrative policy calling for audits less frequent than annual, but only for fiscal years beginning before January 1, 1987.
§ 29a.7 Internal control and compliance reviews.
The Single Audit Act requires that the independent auditor determine and report on whether the organization has internal Control Systems to provide reasonable assurance that it is managing Federal assistance programs in compliance with applicable laws and regulations.
(a) Internal control review. In order to provide this assurance, the auditor must make a study and evaluation of internal Control Systems used in administering Federal assistance programs. The study and evaluation must be made whether or not the auditor intends to place reliance on such systems. As part of this review, the auditor Shall:
(1) Test, whether these internal Control Systems are functioning in accordance with prescribed procedures.
(2) Examine the recipient’s System for monitoring Subrecipients and obtaining and acting on Subrecipient audit reports.
(b) Compliance review. The Law also requires the auditor to determine whether the organization has complied with laws and regulations that may have a material effect on each major Federal assistance program.
(1) In order to determine which major programs are to be tested for compliance, State and local governments shall identify in their accounts all Federal funds received and expended and the programs under which they were received. This shall include funds received directly from Federal agencies and through other State and local government.S.
(2) The review must include the selection and testing of a representative number of charges from each major Federal assistance program. The selection and testing of transactions shall be based on the auditor’s professional judgment considering such factors as the amount of expenditures for the program and the individual awards; the newness of the program or changes in its conditions; prior experience with the program, particularly as revealed in audits and other evaluations (e.g., inspections, program reviews); the extent to which the program is carried Out through subrecipients; the extent to which the program contracts for goods or Services; the level to which the program is already subject to program reviews or other forms of independent oversight; the adequacy of the Controls for ensuring compliance; the expectation of adherence or lack of adherence to the applicable laws and regulations; and the potential impact of adverse findings. (i) In making the test of transactions, the auditor shall determine whether: (A) The amounts reported as expenditures were for allowable services, and (B) The records show that those who received services or benefits were eligible to receive them. (ii) In addition to transaction testing, the auditor Shall determine wheth€I’. (A) Matching requirements, levels of effort and earmarking limitations were met, (B) Federal financial reports and claims for advances and reimbursements contain information that is sup— ported by the books and records from which the basic financial statements have been prepared, and (C) Amounts claimed or used for matching were determined in accordance with OMB Circular A–87, “Cost principles for State and local governments,” and Attachment; F of OMB Circular A–102, “Uniform requirements for grants to State or local governments.” (iii) The principle compliance requirements of the largest Federal aid programs may be ascertained by referring to the Compliance Supplement for Single Audits of State and Local Governments, issued by OMB and available
from the Government Printing Office. For those programs not covered in the Compliance Supplement, the auditor may ascertain Compliance requirements by researching the Statutes, regulations, and agreement.S governing individual programs.
(3) Transactions related to other Federal assistance programs that are Selected in Connection with examinations Of financial Statements and evaluations of internal controls shall be tested for compliance with Federal laws and regulations that apply to Such transactions.
§ 29a.8 Subrecipients.
State or local governments that receive Federal financial assistance and provide $25,000 or more of it in a fiscal year to a Subrecipient shall:
(a) Determine whether State or local subrecipients have met the audit requirements Of this part and whether Subrecipients covered by Circular A– 110, “Uniform requirements for grants
to universities, hospitals, and other nonprofit organizations,” have met that requirement; (b) Determine whether the Subrecipient Spent Federal assistance
funds provided in accordance with applicable laws and regulations. This may be accomplished by reviewing an audit of the Subrecipient made in a CCordance with this part, OMB Circular A–110, or through other means (e.g., program reviews) if the Subrecipient has not yet had such an audit;
(C) Ensure that appropriate Corrective action is taken within Six months after receipt of the audit report in inStances of noncompliance with Federal laws and regulations;
(d) Consider whether Subrecipient audits necessitate adjustment of the reCipient’s Own records; and
(e) Require each subrecipient to permit independent auditors to have acCeSS to the records and financial statement, as necessary to comply with this part.
$29a.9 Relation to other audit requirements.
The Single Audit Act provides that an audit made in accordance with this part shall be in lieu of any financial or financial compliance audit required
under individual Federal assistance programs. To the extent that a single audit provides the Department with information and assurance it needs to Carry Out its Overall responsibilities, the Department shall rely upon and use Such information. However, the Department shall make any additional audits which are necessary to carry out its responsibilities under Federal law and regulations. Any additional Federal audit effort Shall be planned and carried out in Such a way as to avoid duplication.
(a) The provisions of this part do not limit the authority of the Department to make, or contract for audits and evaluations of Federal financial assistance programs, nor does it limit the authority of the Inspector General or Other Federal audit Officials.
(b) The provisions of this part do not authorize any State or local government Or Subrecipient thereof to ConStrain the Department, in any manner, from Carrying out additional audits.
(c) The Department, when making or Contracting for audits in addition to the audits made by recipients pursuant to this part shall, consistent with Other applicable laws and regulations, arrange for funding the cost of such additional audits. Such additional audits include economy and efficiency audits, program results audits, and program evaluations.
§ 29a.10 Cognizant agency responsibilities.
The Single Audit Act provides for Cognizant Federal agencies to Oversee the implementation of this part.
(a) The Office Of Management and Budget will assign Cognizant agencies for States and their subdivisions and larger local governments and their Subdivisions. Other Federal agencies may participate with an assigned cognizant agency in order to fulfill the Cognizant responsibilities. Smaller governments not assigned a cognizant agency will be under the general oversight of the Federal agency that provides them the most funds whether directly or indirectly.
(b) A cognizant agency shall have the following responsibilities:
(1) Ensure that audits are made and reports are received in a timely manner and in accordance with the requirements of this rule. (2) Provide technical advice and liai– son to State and local governments and independent auditors. (3) Obtain or make quality control reviews of selected audits made by nonFederal audit organizations and provide the results, when appropriate, to other interested organizations. (4) Promptly inform other affected Federal agencies and appropriate Federal law enforcement officials of any reported illegal acts or irregularities. They should also inform State or local law enforcement and prosecuting authorities, if not advised by the recipient, Of any violation of law within their jurisdiction. (5) Advise the recipient of audits that have been found not to have met the requirements set forth in this part. In such instances, the recipient will be expected to work with the auditor to take corrective action. If corrective action is not taken, the Cognizant agency shall notify the recipient and Federal awarding agencies of the facts and make recommendations for followup action. Major inadequacies of repetitive Substandard performance of independent auditors shall be referred to appropriate professional bodies for disciplinary action. (6) Coordinate, to the extent practicable, audits made by or for Federal agencies that are in addition to the audits made pursuant to this rule, so that the additional audits build upon such audits. (7) Oversee the resolution of audit findings that affect the programs of more than One agency.
§ 29a.11 Illegal acts or irregularities.
If the auditor becomes aware of illegal acts or other irregularities, prompt notice shall be given to recipient management officials above the level of involvement. (See also $8a.12(a)(3) for the auditor’s reporting responsibilities.) The recipient, in turn, shall promptly notify the cognizant agency of the illegal acts or irregularities and of proposed and actual actions, if any. Illegal acts and irregularities include Such matters as conflicts of interest, fal
Sification of records or reports, and misappropriations of funds or other asSetS.
$29a. 12 Audit reports.
Audit reports must be prepared at the completion of the audit. Reports Serve many needs of State and local governments as well as meeting the requirements of the Single Audit Act. (a) The audit report shall state that the audit was made in accordance with the provisions of this part. The reports shall be made up of at least: (1) The auditor’s report on financial Statements and on a schedule of Federal assistance; the financial statements; and a schedule of Federal assistance, showing the total expenditures for each Federal assistance program as identified in the Catalog of Federal Domestic Assistance. Federal programs or grants that have not been assigned a catalog number shall be identified under the caption “other Federal assistance.” (2) The auditor’s report on the study and evaluation of internal control systems must identify the organization’s Significant internal accounting controls, and those controls designed to provide reasonable assurance that Federal programs are being managed in Compliance with laws and regulations. It must also identify the controls that were evaluated, the controls that were not evaluated, and the material weakneSS identified as a result of the evaluation. (3) The auditor’s report on compliance COntaining: (i) A statement of positive assurance with respect to those items tested for compliance, including compliance with law and regulations pertaining to financial reports and claims for advances and reimbursements; (ii) Negative assurance On those items not tested; . (iii) A Summary of all instances of noncompliance; and (iv) An identification of total amounts questioned, if any, for each Federal assistance award, as a result of noncompliance. (b) The three parts of the audit report may be bound into a single report, or presented at the same time as separate documents.
(c) All fraud abuse, or illegal acts Or indications of such acts, including all questioned costs found as the result of these acts that auditors become aware of, should normally be covered in a Separāte written report Submitted in a Ccordance with $8a.12(f). (d) In addition to the audit report, the recipient shall provide comments on the findings and recommendations in the report, including a plan for corrective action taken or planned and comments on the Status Of corrective action taken on prior findings. If corrective action is not necessary, a Statement describing the reason it is not should accompany the audit report. (e) The reports shall be made available by the State or local government for public inspection within 30 days after the completion of the audit. (f) In accordance with generally a CCepted government audit, Standards, report shall be submitted by the auditor to the Organization audited and to those requiring or arranging for the audit. In addition, the recipient shall submit copies of the reports to each Federal department Or agency that provided Federal assistance funds to the recipient. Subrecipients shall Submit Copies to recipients that provided them Federal assistance funds. The reports shall be sent within 30 days after the end of the audit period unless a longer period is agreed to with the COgnizant agency. (g) Recipients of more than $100,000 in Federal funds shall Submit One Copy of the audit report within 30 days after issuance to a central clearinghouse to be designated by the Office of Management and Budget. The clearinghouse will keep completed audits on file and followup with State or local governments that have not. Submitted required audit reports. (h) Recipients shall keep audit reports On file for three years from the date Of their issuance.
§ 29a.13 Audit resolution.
(a) AS provided in § 8a.10, the COgnizant agency shall be responsible for monitoring the resolution of audit findings that affect the programs of more than One Federal agency. Resolution of findings that relate to the programs of a single Federal agency will
be the responsibility of the recipient and that agency. Alternate arrangementS may be made on a case-by-case basis by agreement among the agencies Concerned.
(b) Resolution shall be made within Six months after receipt of the report by Federal departments and agencies. Corrective action should proceed as rapidly as possible.
§ 29a.14 Audit workpapers and reports.
Workpapers and reports shall be retained for a minimum of three years from the date of the audit report, unless the auditor is notified in writing by the cognizant agency to extend the retention period. Audit workpapers Shall be made available upon request to the Cognizant agency or its designee or
the General Accounting Office, at the
Completion of the audit.
§ 29a.15 Audit costs.
The Cost of audits made in accordance with the provisions Of this part are allowable charges to Federal assistance programs.
(a) The charges may be considered a direct cost of an allocated indirect Cost, determined in accordance with the provisions of OMB Circular A-87, “Cost Principles for State and local governments.”
(b) Generally, the percentage of CostS charged to Federal assistance programs for a single audit shall not exceed the percentage that Federal funds expended represent of total funds expended by the recipient during the fiscal year. The percentage may be exceeded, however, if appropriate documentation demonstrates higher actual COSt.
§ 29a.16 Sanctions.
The Single Audit Act provides that no cost may be charged to Federal assistance programs for audits required by the Act that are not made in a Ccordance with this part. In Cases of continued inability or unwillingness to have a proper audit, Federal agencies must consider other appropriate Sanctions including:
(a) Withholding a percentage of a Ssistance payments until the audit is completed Satisfactorily,
(b) Withholding or disallowing overhead costs, and
(c) Suspending the Federal assistance agreement until the audit is made.
§ 29a.17 Auditor selection.
In arranging for audit services State and local governments shall follow the procurement standards prescribed by Attachment O of OMB Circular A–102, “Uniform requirements for grants to State and local governments.” The standards provide that while recipients are encouraged to enter into intergovernmental agreements for audit and other services, analysis should be made to determine whether it would be more economical to purchase the Services from private firms. In instances where use of Such intergovernmental agreements are required by State statutes (e.g., audit services) these statutes will take precedence.
§ 29a.18 Small firms.
Small audit firms and audit firms owned and controlled by Socially and economically disadvantaged individuals shall have the maximum practicable Opportunity to participate in contracts awarded to fulfill the requirements of this part. Recipients of Federal assistance shall take the following steps to further this goal: (a) Assure that Small audit firms and audit firms owned and controlled by Socially and economically disadvantaged individuals are used to the fullest extent practicable. (b) Make information on forthcoming opportunities available and arrange timeframes for the audit SO as to encourage and facilitate participation by Small audit firms and audit firms owned and controlled by Socially and economically disadvantaged individuals. (c) Consider in the contract process whether firms competing for larger audits intend to Subcontract with Small audit firms and audit firms owned and controlled by Socially and economically disadvantaged individuals. (d) Encourage contracting with Small audit firms or audit firms owned and controlled by Socially and economically disadvantaged individuals which have traditionally audited government
and minority audit
programs and, in such cases where this is not possible, assure that these firms are given consideration for audit SubContracting Opportunities. (e) Encourage Contracting with ConSortiums of Small audit firms as deScribed in paragraph (a) of this Section when a contract is too large for an individual small audit firm or audit firm owned and controlled by Socially and economically disadvantaged individuals. (f) Use the Services and assistance, as appropriate, of Such organizations as the Small Business Administration in the Solicitation and utilization of Small audit firms or audit firms owned and Controlled by Socially and economically disadvantaged individuals.