Single Audit:

Opportunities Exist to Improve the Single Audit Process and Oversight

GAO-09-307R: Published: Mar 13, 2009. Publicly Released: Apr 10, 2009.

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Federal government grant awards to state and local governments and nonprofit organizations have risen substantially from $7 billion in 1960 to $500 billion budgeted in fiscal year 2009. In constant dollars, federal grant awards rose from about $42 billion in 1960 to $500 billion in fiscal year 2009. The auditing of federal awards, including grant funds, administered by state and local governments and nonprofit organizations is intended to be a key accountability mechanism over the proper use of federal funding. The President's Council on Integrity and Efficiency (PCIE) issued its Report on National Single Audit Sampling Project in June 2007, which raised significant concerns about the quality of single audits and made recommendations aimed at improving the quality of those audits. The Single Audit Act, as amended, is intended to promote sound financial management, including effective internal controls over federal grant funds administered by state and local governments and nonprofit organizations. Congress asked GAO to conduct additional audit work and analysis to identify any further actions needed to improve federal oversight and accountability for federal grant funds. Specifically, Congress asked that we (1) determine whether the federal oversight structure is adequate to monitor the efficiency and effectiveness of the single audit process, (2) identify potential changes that can be made to the single audit process and relevant guidance to improve accountability for federal grant awards, and (3) determine the current status of actions being taken to address the recommendations made in the PCIE report.

Without a mechanism in place to monitor on an ongoing basis how the single audit process is implemented governmentwide, OMB and federal stakeholders are unable to measure the efficiency and effectiveness of this process, as well as its usefulness as an accountability tool over federal grant awards. The variations we found on how federal agencies we reviewed perform key functions of the single audit process demonstrate the need to assess whether federal agencies carry out their single audit responsibilities in an efficient and effective manner. We also believe opportunities exist to address concerns about the complexity and relative costs and benefits of audit requirements for single audits, while concurrently seeking the proper balance between risk and cost-effective accountability by (1) exploring a simplified approach for performing single audits of small entities, and (2) identifying best practices and providing guidance for achieving higher quality single audits of large entities. Office of Management and Budget (OMB), American Institute of Certified Public Accountants (AICPA), and National Association of State Boards of Accountancy (NASBA) have initiated actions to address the PCIE report recommendations. However, most of these actions are not yet completed and their impact on (1) addressing longstanding single audit quality issues, and (2) identifying needed changes to the single audit process, is yet to be determined. Overall, we believe that a centralized federal effort would be beneficial in evaluating risk, cost-benefit, and efficiency and effectiveness of the single audit process, and in making adjustments to the process as necessary.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB agreed with our recommendation. OMB created the Council on Financial Assistance Reform (COFAR) in October 2011. COFAR is an entity whose activities include providing recommendations to OMB on policies and actions necessary to effectively deliver, oversee, and report-through single audits-on grants and cooperative agreements. The Single Audit Act requires each reporting entity that expends above a defined dollar amount in federal awards, including grants and other assistance, in a fiscal year to obtain an annual "single audit", which includes an audit of the entity's financial statements and a schedule of the expenditure of federal awards, and review of related internal controls. On January 28, 2013, COFAR stated some of its priorities for fiscal years 2013 - 2015, which included, among others, (1) clarifying OMB grants guidance, (2) reallocating resources to better target risk, (3) reducing reporting costs for grant recipients and federal agencies, (4) reducing financial risk of grants through staff competency, (5) reducing "unclean" audit opinions, and (6) issuing guidance on program monitoring for single audits as well as identifying high risk programs by December 2013. We concluded that the establishment of COFAR and the activities that it has conducted to date have met the intent of the recommendation.

    Recommendation: In order to monitor the risk, cost--benefit, and efficiency and effectiveness of the single audit process, OMB should designate an entity or group to (1) evaluate and comprehensively monitor the single audit process governmentwide, (2) assess the efficiency and effectiveness of how agencies carry out their single audit responsibilities, and (3) identify additional guidance and resources needed to carry out single audit requirements.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: OMB agreed with our recommendation. In fiscal year 2010, OMB formed the OMB Super Group, which analyzed 34 recommendations made by two other working groups that OMB had previously formed to assess sections of Executive Order 13520, which requires retrospective analysis of existing significant rules and greater coordination across agencies to simplify and harmonize redundant, inconsistent, or overlapping requirements, thus reducing costs. In February 2012, OMB issued a grant reform proposal which includes a series of reform ideas that would standardize information collections across agencies, adopt a risk-based model for single audits, and provide new administrative approaches for determining and monitoring the allocation of federal funds. In addition, in February 2013, OMB issued its Proposed OMB Uniform Guidance, which establishes uniform cost principles and audit requirements for all federal awards to non-federal entities and administrative requirements for all federal grants and cooperative agreements and includes a section on single audit requirements, which changes the audit threshold from $500,000 as required in OMB Circular A-133 to a proposed amount of $750,000 before non-federal entities would require a single audit. We concluded that OMB's actions met the intent of the recommendation.

    Recommendation: In order to monitor the risk, cost--benefit, and efficiency and effectiveness of the single audit process, OMB should designate a federal workgroup such as its New and Improved Single Audit Process workgroup to evaluate the current single audit process to identify simplified alternatives for meeting the accountability objectives of the Single Audit Act for the audits of small entities, while achieving the proper balance between risk and cost-effective accountability for the smallest to the largest entities.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: OMB agreed with our recommendation. In regards to monitoring OMB workgroups, in fiscal year 2010 OMB formed the OMB Super Group, which analyzed recommendations made by two other OMB working groups to, in part, improve single audit quality, efficiency, and effectiveness. In regards to monitoring AICPA task forces, on a biannual basis (the most recent meeting was held May 1, 2013), OMB and the AICPA participate in a "Single Audit Roundtable" to discuss issues that impact the single audit community. In regards to monitoring NASBA referral project activities, based on a June 2013 discussion with an OMB official, OMB agrees with the concept but is not able to do so due to a lack of resources. In addition, OMB is monitoring other key single audit stakeholders via the Council on Financial Assistance Reform, established in October 2011, which engages with Congress, federal agencies, state, local, and tribal governments, institutions of higher education, nonprofit organizations, federal councils, and others to improve federal financial management, including federal grants and single audits. Based on these collective actions, we conclude that OMB has met the intent of this recommendation to monitor and work with other single audit stakeholders to improve single audit quality.

    Recommendation: In order to monitor the risk, cost--benefit, and efficiency and effectiveness of the single audit process, OMB should monitor the status of OMB workgroups, AICPA task forces, and NASBA referral project activities, and evaluate completed actions and their impact on addressing the PCIE report recommendations to improve single audit quality.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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