shall apply to audits of nonprofit institutions for fiscal years that begin on or after May 20, 1991.

§ 29b.2 Background.

This part sets forth audit requirements pursuant to Office of Management and Budget (OMB) Circular A-133, 'Audits of Institutions of Higher Education and Other Nonprofit Organizations," which superseded the audit provisions of Attachment F, subparagraph 2h, of OMB Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Nonprofit Organizations.”

§ 29b.3 Policy.

This part does not exempt institutions of higher education and other nonprofit organizations from maintaining records of financial assistance or from providing Federal agencies with access to such records as required by Federal law or OMB Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Nonprofit Organizations."

§ 29b.4 Definitions.

For purposes of this part, the following definitions apply:

Award means financial assistance, and Federal cost-type contracts used to buy services or goods for the use of the Federal Government. It includes awards received directly from the Federal agencies or indirectly through recipients. It does not include procurement contracts to vendors under grants or contracts, used to buy goods or services. Audits of such vendors shall be covered by the terms and conditions of the contract.

Cognizant agency means the Federal agency assigned by OMB to carry out the responsibilities described in §29b.6. Coordinated audit approach means an audit wherein the independent auditor, and other Federal and non-Federal auditors consider each other's work in determining the nature, timing, and extent of his or her own auditing procedures. A coordinated audit must be conducted in accordance with "Government Auditing Standards," and meet

the objectives and reporting requirements set forth in §29b.15(b) and 29b.18, respectively. The objective of the coordinated audit approach is to minimize duplication of audit effort, but not to limit the scope of the audit work so as to preclude the independent auditor from meeting the objectives set forth in §29b.15(b) or issuing the reports required in §29b.18 in a timely

manner.

Federal agency has the same meaning as the term 'agency' in section 551(1) of title 5, United States Code.

Federal financial assistance means assistance provided by a Federal agency to a recipient or sub-recipient to carry out a program. Such assistance may be in the form of grants, contracts, cooperative agreements, loans, loan guarantees, property, interest subsidies, insurance, direct appropriations, or other non-cash assistance.

(1) Such assistance does not include direct Federal cash assistance to individuals.

(2) Such assistance does include awards received directly from Federal agencies, or indirectly when sub-recipients receive funds identified by recipients as Federal funds.

(3) The granting agency is responsible for identifying the source of funds awarded to recipients. Recipients are responsible for identifying the source of funds awarded to sub-receipts.

Generally accepted accounting principles has the meaning specified in the "Government Auditing Standards.'

Independent auditor means:

(1) A Federal, State or local government auditor who meets the standards specified in the "Government Auditing Standards;" or

(2) A public accountant who meets such standards.

Internal control structure means the policies and procedures established to provide reasonable assurance that:

(1) Resource use is consistent with laws, regulations, and award terms;

(2) Resources are safeguarded against waste, loss, and misuse; and

(3) Reliable data is obtained, maintained, and fairly disclosed in reports.

Major program means an individual award or a number of awards in a category of Federal assistance or support for which total expenditures are the

(3) Individual awards not in the student aid or research and development category.

Management decision means the evaluation by the management of an establishment of the findings and recommendations included in an audit report and the issuance of a final decision by management concerning its response to such findings and recommendations, including actions concluded to be necessary.

Nonprofit institution means any corporation, trust, association, cooperative or other organization which:

(1) Is operated primarily for scientific, educational, service, charitable, or similar purposes in the public interest;

(2) Is not organized primarily for profit; and

(3) Uses its net proceeds to maintain, improve, and/or expand its operations.

The term nonprofit institutions includes institutions of higher education, except those institutions that are audited as part of single audits in accordance with part 29a, “Audit Requirements for State and Local Governments." The term does not include hospitals which are not affiliated with an institution of higher education, State and local governments and Indian tribes covered by part 29a.

or

Oversight agency means the Federal agency that provides the predominant amount of direct funding to a recipient not assigned a cognizant agency, unless no direct funding is received. Where there is no direct funding, the Federal agency with the predominant indirect funding will assume the general oversight responsibilities as set forth in § 29b.7.

Recipient means an organization receiving financial assistance to carry out a program directly from Federal agencies.

Research and development includes all research activities, both basic and applied, and all development activities that are supported at universities, colleges, and other nonprofit institutions. "Research" is defined as a systematic study directed toward fuller scientific knowledge or understanding of the subject studied. "Development" is the systematic use of knowledge and understanding gained from research directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes.

Student Financial Aid includes those programs of general student assistance in which institutions participate, such as those authorized by Title IV of the Higher Education Act of 1965 which is administered by the U.S. Department of Education and similar programs provided by other Federal agencies. It does not include programs which provide fellowships or similar awards to students on a competitive basis, or for specified studies or research.

Sub-recipient means any person or government department, agency, establishment, or nonprofit organization that receives Federal financial assistance to carry out a program through a primary recipient or other sub-recipient, but does not include an individual that is a beneficiary of such a program. A sub-recipient may also be a direct recipient of Federal awards under other agreements.

Vendor means an organization providing a recipient or sub-recipient with generally required goods or services that are related to the administrative support of the Federal assistance program.

§ 29b.5 Audit of nonprofit institutions. (a) Requirements based on awards received.

(1) Nonprofit institutions that receive $100,000 or more a year in Federal awards shall have an audit made in accordance with the provisions of this part. However, nonprofit institutions receiving $100,000 or more but receiving awards under only one program have

the option of having an audit of their institution prepared in accordance with the provisions of this part or having an audit made of the one program. For prior or subsequent years, when an institution has only loan guarantees or outstanding loans that were made previously, the institution may be required to conduct audits for those programs, in accordance with regulations of the Federal agencies providing those guarantees or loans.

(2) Nonprofit institutions that receive at least $25,000 but less than $100,000 a year in Federal awards shall have an audit made in accordance with this part or have an audit made of each Federal award, in accordance with Federal laws and regulations governing the programs in which they participate.

(3) Nonprofit institutions receiving less than $25,000 a year in Federal awards are exempt from Federal audit requirements, but records must be available for review by appropriate officials of the Federal grantor agency or subgranting entity.

(b) Oversight by federal agencies.

(1) To each of the larger nonprofit institutions, OMB will assign a Federal agency as the cognizant agency for monitoring audits and ensuring the resolution of audit findings that affect the programs of more than one agency.

(2) Smaller institutions not assigned a cognizant agency will be under the general oversight of the Federal agency that provides them with the most funds.

(3) Assignments to Federal cognizant agencies for carrying out responsibilities in this section are set forth under a supplement to OMB Circular A-133.

(4) Federal Government-owned, contractor-operated facilities at institutions or laboratories operated primarily for the Government are not included in the cognizance assignments. These will remain the responsibility of the contracting agencies. The listed assignments cover all of the functions in this part unless otherwise indicated. OMB coordinates changes in agency assignments.

§ 29b.6 Cognizant agency responsibilities.

The cognizant agency shall:

(a) Ensure that audits are made and reports are received in a timely manner and in accordance with the requirements of this part;

(b) Provide technical advice and liaison to institutions and independent auditors;

(c) Obtain or make quality control reviews of selected audits made by nonFederal audit organizations, and provide the results, when appropriate, to other interested organizations;

(d) Promptly inform other affected Federal agencies and appropriate Federal law enforcement officials of any reported illegal acts or irregularities. A cognizant agency 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;

(e) 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 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 facts and make recommendations for follow-up action. Major inadequacies or repetitive substandard performance of independent auditors shall be referred to appropriate professional bodies for disciplinary action;

(f) Coordinate, to the extent practicable, audits or reviews made for Federal agencies that are in addition to the audits made pursuant to this part, so that the additional audits or reviews build upon audits performed in accordance with this part;

(g) Ensure the resolution of audit findings that affect the programs of more than one agency;

(h) Seek the views of other interested agencies before completing a coordinated program; and

(i) Help coordinate the audit work and reporting responsibilities among independent public accountants, State auditors, and both resident and nonresident Federal auditors to achieve the most cost-effective audit.

§ 29b.7 Oversight agency responsibilities.

An oversight agency shall provide technical advice and counsel to institutions and independent auditors when requested by the recipient. The oversight agency may assume all or some of the responsibilities normally performed by a cognizant agency.

§ 29b.8 Recipient responsibilities.

A recipient that receives a Federal award and provides $25,000 or more of it during its fiscal year to a sub-recipient shall:

(a) Ensure that nonprofit sub-recipients that receive $25,000 or more have met the audit requirements of this part, and that sub-recipients subject to part 29a, "Audit Requirements for State and Local Governments,' have met the audit requirements of that part;

(b) Ensure that appropriate corrective action is taken within six months after receipt of the sub-recipient audit report in instances of noncompliance with Federal laws and regulations;

(c) Consider whether sub-recipient audits necessitate adjustment of the recipient's own records; and

(d) Require each sub-recipient to permit independent auditors to have access to the records and financial statements as necessary for the recipient to comply with this part.

§ 29b.9 Relation to other audit requirements.

(a) An audit made in accordance with this part shall be in lieu of any financial audit required under individual Federal awards to the extent that it provides the Department with the information and assurances it needs to carry out its overall responsibilities, it shall rely upon and use such information. However, the Department shall make any additional audits or reviews necessary to carry out responsibilities under Federal law and regulations. Any additional Federal audits or reviews shall be planned and carried out in such a way as to build upon work performed by the independent auditor.

(b) Audit planning within the Department shall consider the extent to which reliance can be placed upon work performed by other auditors. Such

auditors include Federal, State, local, and other independent auditors, and a recipient's internal auditors. Reliance placed upon the work of other auditors should be documented and in accordance with "Government Auditing Standards."

(c) The provisions of this part do not limit the authority of the Department to make or contract for audits and evaluations of Federal awards, nor do they limit the authority of the Inspector General or other Federal official.

(d) The provisions of this part do not authorize any institution or sub-reçipient thereof to constrain the Department, in any manner, from carrying out additional audits, evaluations or reviews.

(e) 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 or reviews include financial audits, performance audits, and program evaluations.

§ 29b.10 Frequency of audit.

Audits shall usually be performed annually but not less frequently than every two years.

§ 29b.11 Sanctions.

No audit costs may be charged to Federal awards when audits required by this part have not been made or have been made but not in accordance with the provisions of this part. In cases of continued inability or unwillingness to have a proper audit made in accordance with this part, the Department shall consider appropriate sanctions including:

(a) Withholding a precentage of awards until the audit is completed satisfactorily;

(b) Withholding or disallowing overhead costs, or

(c) Suspending Federal awards until the audit is made.

§ 29b.12 Audit costs.

The cost of audits made in accordance with the provisions of this part are allowable charges to Federal awards. The charges may be considered

a direct cost or an allocated indirect cost, determined in accordance with the provisions of OMB Circulars A-21, "Cost Principles for Educational Institutions," or A-122, "Cost Principles for Nonprofit Organizations," 48 CFR part 31 of the Federal Acquisition Regulations (FAR) or other applicable cost principles or regulations.

§ 29b.13 Auditor selection.

In arranging for audit services, institutions shall follow the procurement standards prescribed by OMB Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals and Other Nonprofit Organizations."

§ 29b.14 Small and minority audit

firms.

(a) 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.

(b) Recipients of Federal awards shall take the following steps to further this goal:

(1) Ensure that small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals are used to the fullest extent practicable;

(2) Make information on forthcoming opportunities available and arrange timeframes for the audit to encourage and facilitate participation by small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals;

(3) 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;

(4) Encourage contracting with small audit firms or audit firms owned and controlled by socially and economically disadvantaged individuals which have traditionally audited government programs, and in cases where this is not possible, assure that these firms are given consideration for audit subcontracting opportunities;

(5) Encourage contracting with consortiums of small audit firms as described in paragraph (b)(1) 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; and

(6) 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.

§ 29b.15 Scope of audit and audit objectives.

(a) The audit shall be made by an independent auditor in accordance with "Government Auditing Standards" developed by the Comptroller General of the United States covering financial audits. An audit under this part should be an organization-wide audit of the institution. However, there may be instances where Federal auditors are performing audits or are planning to perform audits at nonprofit institutions. In these cases, to minimize duplication of audit work, a coordinated audit approach may be agreed upon between the independent auditor, the recipient, and the cognizant agency or the oversight agency. Those auditors who assume responsibility for any or all of the reports called for by §29b.18 should follow guidance set forth in "Government Auditing Standards" in using work performed by others. (b) The auditor shall auditor shall determine whether:

(1) The financial statements of the institution present fairly its financial position and the results of its operations in accordance with generally accepted accounting principles;

(2) The institution has an internal control structure to provide reasonable assurance that the institution is managing Federal awards in compliance with applicable laws and regulations, and controls that ensure compliance with the laws and regulations that could have a material impact on the financial statements; and

(3) The institution has complied with laws and regulations that may have a