![](media/image1.wmf){width="0.7930555555555555in"
height="0.7694444444444445in"} U. S. Department of Housing and Urban
Development

Office of Public and Indian Housing

Special Attention of: NOTICE PIH 2006-20 (TDHEs)

Tribes; Tribally Designated Issued: June 7, 2006

Housing Entities (TDHEs);

Indian Housing Authorities; Expires: June 30, 2007

ONAP Administrators \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Cross Reference: 24 CFR Part 1000,

OMB Circular A-87 and

OMB Circular A-133

Subject: Financial Audit Requirements

1.  **What is the purpose of this Notice?** This Notice reiterates
    Notice PIH-2002-17 which was reinstated by PIH Notice 2003-28, and
    provides specific guidance on the financial audit requirements for
    the participants in the Indian Housing Block Grant (IHBG), Indian
    Community Development Block Grant (ICDBG) and other HUD programs
    that are available to Native American recipients, such as the Rural
    Housing and Economic Development Program, and the Public and Indian
    Housing Drug Elimination Program.

2.  **What are the financial audit requirements for IHBG recipients?**
    Title 24 CFR §1000.544 requires IHBG recipients to comply with the
    requirements of the Single Audit Act and OMB Circular A-133 by
    obtaining annual audits if a recipient expends Federal funds equal
    to or in excess of a threshold amount specified by the U.S. Office
    of Management and Budget (OMB), which is currently set at \$500,000
    in a fiscal year.

3.  **What are the financial audit requirements for ICDBG and other**
    **program recipients?** Title 24 CFR §1003.501 incorporates 24 CFR
    Part 85 requirements that apply to ICDBG recipients. Title 24 CFR
    §85.26, Non-Federal Audits, states, "Grantees and sub-grantees are
    responsible for obtaining audits in accordance with the Single Audit
    Act Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB
    Circular A-133, 'Audits of States, Local Governments, and Non-Profit
    Organizations.'" The other programs available to Office of Native
    American Programs (ONAP) recipients contain similar language and
    requirements.

4.  **What is the purpose of OMB Circular A-133, *Audits of States,
    Local Governments, and Non-Profit Organizations*, (Circular
    A-133)?** The purpose of Circular A-133 is to set forth standards to
    obtain consistency and uniformity for audits of non-Federal entities
    expending Federal awards.

5.  **What is the basic requirement for audits contained in Circular
    A-133?** Circular A-133 requires that non-Federal entities that
    expend Federal funds equal to or in excess of a threshold amount
    specified by OMB (currently set at \$500,000 in a fiscal year) shall
    have a single or program-specific audit conducted for that year in
    accordance with the provisions of the circular.

6.  **Who are non-Federal entities?** Non-Federal entities are defined
    in Circular A-133 to be "States, local governments, or non-profit
    organizations." Tribes are included as a state government for the
    purposes of this requirement. Section 405(a) of the Native American
    Housing Assistance and Self--Determination Act of 1996 (NAHASDA)
    states "An entity designated by an Indian tribe as a housing entity
    \[Tribally Designated Housing Entity (TDHE)\] shall be treated \...
    as a non-Federal entity that is subject to the audit requirements
    that apply to non-Federal entities\...."

7.  **What are the basic audit requirements?** The basic requirements
    contained in Circular A-133 are:

    -   Obtain an audit if an entity expends Federal grant funds in a
        fiscal year that meet or exceed the threshold amount (currently
        set at \$500,000 in a fiscal year);

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    -   Submit the audit reporting package with copies for the affected
        Federal agencies to the Federal Audit Clearinghouse (FAC); and

    -   Insert in the audit report package the Financial Statements,
        Schedule of Federal Award Expenditures, Summary Schedule of
        Prior Audit Findings, auditor's report(s) and corrective action
        plan.

8.  **Has ONAP expanded on the basic audit requirements?** ONAP has
    augmented the requirements of Circular A-133 by requesting
    recipients to:

    -   Identify in the Schedule of Federal Award Expenditures
        cumulative grant expenditures and current period expenditures
        for each open grant.

    -   For IHBG recipients - submit a copy of the audit report package
        to ONAP when the package is submitted to the FAC. (Note: Title
        24 CFR §1000.548 requires an IHBG recipient to submit a copy of
        their latest audit with their Annual Performance Report (APR)).
        ONAP requests a copy of the audit be submitted to ONAP
        concurrent with the submission to the FAC in lieu of submission
        with the APR.

9.  **How often must an audit be conducted?** Circular A-133 requires
    annual audits, except where (a) a tribe is required by tribal law,
    which was in effect on January 1, 1987, to undergo its audits less
    frequently than annually. If this requirement is still in effect for
    the biennial period under audit, the tribe may undergo its audits
    biennially; or (b) a non-profit organization that for the periods
    between July 1, 1992, and January 1, 1995, had biennial audits may
    continue with biennial audits.

10. **What are the audit responsibilities of ONAP recipients?** The
    audit responsibilities of a recipient, as stated in Circular A-133,
    are:

    -   Identify, in its accounts, all Federal awards received and
        expended and the Federal programs under which they were
        received.

    -   Maintain internal control over Federal programs that provides
        reasonable assurance that the recipient is managing Federal
        awards in compliance with laws, regulations, and the provisions
        of contracts or grant agreements that could have a material
        effect on each of its Federal programs.

    -   Comply with laws, regulations, and the provisions of contracts
        or grant agreements related to each of its Federal programs.

    -   Prepare appropriate financial statements, including the Schedule
        of Expenditures of Federal Awards.

    -   Ensure that audits required by Circular A-133 are properly
        performed and submitted when due.

    -   Follow up and take corrective action on audit findings,
        including preparation of a Summary Schedule of Prior Audit
        Findings and a corrective action plan.

11. **What requirements must the auditor meet?** Circular A-133 requires
    that an auditor shall:

    -   Conduct the audit according to generally accepted governmental
        auditing standards.

    -   Obtain an understanding of the recipient's internal control
        procedures and perform tests to determine the effectiveness of
        the internal control procedures.

    -   Perform tests to determine if the recipient complied with the
        laws, regulations and the provisions of contracts or grant
        agreements that may have a direct and material effect on each of
        its major Federal programs.

    -   Follow-up on prior audit findings; determine the reasonableness
        of the recipient's Summary Schedule of Prior Audit Findings and
        report as a current audit finding any instances of material
        misrepresentations in the summary schedule.

12. **What are the cognizant Federal agency audit responsibilities?**
    Recipients expending more than \$50 million in Federal awards a year
    shall have a cognizant audit agency. The cognizant agency will be
    the Federal agency providing the largest amount of funding, unless
    the OMB makes a specific assignment. The cognizant audit agency
    will:

    -   Provide technical audit advice and liaison to recipients and
        auditors.

    -   Review recipient extension requests for audit submission. The
        cognizant agency may grant an extension for good cause.

    -   Obtain or conduct quality control reviews of selected audits
        made by non-Federal auditors and provide the results, when
        appropriate, to other interested organizations.

    -   Inform appropriate Federal officials of irregularities or
        illegal acts.

    -   Advise the auditor and, where appropriate, the recipient of any
        deficiencies found in the audits that require corrective action
        by the auditor.

    -   Coordinate any additional audits or reviews so that the audits
        or reviews build upon work performed during the A-133 audit.

    -   Coordinate a management decision for audit findings that affect
        programs of more than one Federal agency.

    -   Coordinate the work and reporting responsibilities among
        auditors to obtain the most cost-effective audit.

    -   Consider requests to qualify as low-risk from recipients
        receiving biennial audits.

13. **What are the oversight Federal agency responsibilities?**
    Recipients expending \$50 million or less in Federal awards shall
    have an oversight agency for audit. The oversight agency will be the
    Federal agency providing the largest amount of funding. The
    oversight agency will:

    -   Provide technical advice to recipients and auditors.

    -   Assume all or some of the responsibilities of the cognizant
        audit agency. HUD will assume all of the cognizant audit agency
        responsibilities for those recipients for which HUD is the
        oversight agency.

14. **What are Federal awards for ONAP recipients?** Federal awards to
    ONAP recipients mean Federal financial assistance in the form of
    grants and loan guarantees that recipients or subrecipients receive
    directly from ONAP, other Federal agencies or indirectly from
    pass-through entities.

15. **How are Federal awards identified in the audit report?** ONAP
    recipients are required to identify all Federal funds received and
    expended and the Federal programs under which the funds were
    received. Federal program identification includes the Catalog of
    Federal Domestic Assistance (CFDA) title and number, award number
    and year, awarding Federal agency, and any pass-through entities.
    CFDA titles and numbers may be found on the Internet at
    <http://12.46.245.173/cfda/cfda.html>.

16. **What CFDA titles and numbers apply to ONAP programs** **available
    to Native American recipients?** The applicable CFDA titles and
    numbers are provided below:

    -   14.250 Rural Housing and Economic Development

    -   14.850 Public and Indian Housing

    -   14.854 Public and Indian Housing Drug Elimination Program

    -   14.862 Indian Community Development Block Grant Program

    -   14.865 Public and Indian Housing: Indian Loan Guarantee Program

    -   14.867 Indian Housing Block Grants

    -   14.869 Title VI Federal Guarantees for Financing Tribal Housing
        Activities

-   14.870 Resident Opportunity and Supportive Services

17. **What are the financial statement requirements?** An ONAP recipient
    is required to prepare financial statements that reflect its
    financial position, results of operations, and cash flows for the
    fiscal year; that is the Balance Sheet, Statement of Revenues and
    Expenses, and Statement of Cash Flows.

18. **Are there any other required statements?** ONAP recipients are
    also required to prepare a Schedule of Expenditures of Federal
    Awards and a Summary Schedule of Prior Audit Findings.

19. **What is required to be included in the Schedule of Expenditures of
    Federal Awards?** The schedule shall:

    -   Identify individual programs by Federal agency.

    -   Identify Federal awards received as a subrecipient, the name of
        the pass-through entity and identifying number assigned by the
        pass-through entity.

    -   Provide the total amount expended for each Federal grant award
        and the CFDA number. ONAP recipients should identify cumulative
        expenditures to-date and expenditures for the current period for
        each open ONAP grant.

    -   Describe significant accounting policies used in preparing the
        schedule.

    -   Identify the total amount provided to subrecipients from each
        Federal program.

    -   Identify the value of non-cash assistance, amount of insurance
        in effect during the year and loans or loan guarantees
        outstanding at the year's end.

20. **When are audit reports due?** ONAP recipients are to submit a
    complete audit report package to the FAC within 30 days of receipt
    from the auditor or nine months after the end of the recipient's
    fiscal year, whichever occurs earlier. ONAP program recipients are
    requested to submit a copy of the audit report package to the
    appropriate ONAP Area Office when the package is submitted to the
    FAC.

21. **What is included in the audit report package?** The audit report
    package is comprised of the financial statements and Schedule of
    Expenditures of Federal Awards, Summary Schedule of Prior Audit
    Findings, the auditor's report(s), and a corrective action plan.

22. **What is the address of the Federal Audit Clearinghouse?** The
    audit report package and a Data Collection Form for Reporting on
    Audits of States, Local Governments, and Non-Profit Organizations
    (Form SF-SAC) are to be submitted to the FAC. The address for the
    Clearinghouse is:

> Federal Audit Clearinghouse
>
> Bureau of the Census
>
> 1201 E. 10th Street
>
> Jeffersonville, IN 47132

23. **How many copies of the reporting package should be submitted?** In
    addition to the audit report package for the FAC, Federal program
    participants are required to include additional copies of the report
    package for each Federal awarding agency when the schedule of
    findings and questioned costs disclosed audit findings relating to
    Federal awards that the Federal awarding agency provided directly.
    Also, copies must be submitted for each Federal awarding agency when
    the Summary Schedule of Prior Audit Findings reported the status of
    any audit findings relating to Federal awards that the Federal
    awarding agency provided directly.

24. **What happens if an audit is not performed and submitted?**
    Circular A-133 provides that no audit costs may be charged to
    Federal awards if the financial reviews have not been performed
    according to the Circular requirements. In instances of inability or
    unwillingness to comply with Circular A-133, Federal agencies may
    take appropriate actions using sanctions, such as:

    -   withholding a percentage of the Federal award until the audit is
        satisfactorily completed;

    -   withholding or disallowing overhead costs;

    -   suspending Federal awards until the audit is conducted; or

    -   terminating the Federal award.

The imposition by HUD of any sanction for failure by an IHBG recipient
to meet the audit requirements of Circular A-133 would follow the
process provided for in Title IV of NAHASDA as implemented by Subpart F
of 24 CFR Part 1000. In a similar manner, the imposition by HUD of any
sanction for failure by an ICDBG recipient to meet the audit
requirements of Circular A-133 would follow the process provided for in
Subpart H of 24 CFR Part 1003.

25. **Are audit costs eligible costs?** Title 24 CFR Section 1000.546
    states that audit costs are an eligible program or administrative
    expense under IHBG. For the ICDBG and other ONAP grant programs, OMB
    Circular A-87 in Attachment A, item 4 provides that "The costs of
    audits required by, and performed in accordance with, the Single
    Audit Act, as implemented by Circular A-133 ... are allowable".

26. **May a financial review be charged to IHBG?** Title 24 CFR Section
    1000.546 allows IHBG funds to be used to obtain a financial review
    for those ONAP recipients expending Federal funds less than the
    Circular A-133 threshold amount (currently set at \$500,000 in a
    fiscal year). Recipients that obtain such a financial review are to
    submit a copy of the review to ONAP when it is received from the
    auditor. ONAP recipients are not required to submit the financial
    review to the FAC.

27. **What are the work paper retention requirements for Auditors?**
    Auditors are required by Circular A-133 to retain their audit
    working papers and reports for a minimum of 3 years after the date
    of issuance of the auditor's report(s) to the recipient unless
    notified in writing by the cognizant or oversight agency for audit
    or the pass-through entity to extend the retention period.

28. **Who may review the Auditor's work papers?** Audit working papers
    shall be made available upon request to the cognizant or oversight
    agency for audit or its designee, a Federal agency providing direct
    or indirect funding or the U.S. General Accounting Office. ONAP has
    delegated its responsibility to conduct quality control reviews of
    audit working papers to the Real Estate Assessment Center's Quality
    Assurance Subsystem (QASS) Team for those entities for which HUD is
    the oversight agency.

The information collection requirements contained in this notice have
been approved by the U.S. Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-35200 and assigned
OMB control number 2577-0218 (Exp. 04/30/2008). In accordance with the
Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
collection displays a currently valid OMB control number.

If you have any questions regarding this policy, please contact your
assigned Grants Evaluation Specialist in the local ONAP Area Office.

> Orlando J. Cabrera , Assistant Secretary
>
> for Public and Indian Housing

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Official Record Copy U.S. Department of Housing and Urban Development
form HUD-713.1 (02/03)

Previous edition is obsolete