> **Subject: OMB Circular A-133 Audits and the Federal Audit
> Clearinghouse**
>
> **What is the Purpose of this Financial Assistance Letter (FAL)?**
>
> This FAL provides Contracting Officers (COs) and personnel working on
> grants guidance regarding the use of A-133 audits and the Federal
> Audit Clearinghouse (FAC). The purpose of the FAL is to ensure that 1)
> potential recipients are screened prior to award for submission of the
> audit and for qualified or adverse opinions in the audit; 2) audits
> with questioned items are reviewed and management decisions issued;
> and 3) that submission of audits and questioned costs are reviewed
> during the closeout process.
>
> **How will this FAL Change My Work Processes?**
>
> COs will need to check the FAC while performing the business and
> financial management review prior to award and also during the
> closeout process for audit submission and disposition of any
> questioned costs (if applicable). In addition, COs will need to review
> and, if applicable, approve corrective action plans on audits that
> have questioned costs or other identified problems. COs will need to
> monitor compliance with the corrective action plan and update the
> tracking system.
>
> **What is Needed to Implement this FAL?**
>
> Each Procurement Office will need to implement a system to log and
> track actions taken on problem audits. If the Office is the lead
> agency for a recipient with questioned costs or other audit problems,
> a lead individual shall be designated to coordinate the corrective
> action plan review and approval with other affected agencies and DOE
> offices.
>
> **When is this Financial Assistance Letter (FAL) Effective?**
>
> This FAL is effective 10 days from date of issuance.
>
> **When Does This FAL Expire?**
>
> This FAL remains in effect until superseded or canceled.
>
> **Who is the Point of Contact?**
>
> Contact Jackie Kniskern of the Office of Procurement and Assistance
> Policy by telephone at (202) 586-8189 or by email at
> <jacqueline.kniskern@pr.doe.gov>.

**What is the Background?**

> OMB Circular A-133, "Audits of States, Local Governments and
> Non-Profit Organizations", provides specific policy, procedures and
> criteria which Federal agencies, auditees and auditors are required to
> follow for the conduct and review of a single audit for all Federal
> funds received by a recipient during the recipient's fiscal year. A
> single audit is required of a recipient of Federal funds when the
> total of funds expended exceeds \$500,000. The Circular sets standards
> for consistency and uniformity of the audits. The requirements of
> Circular A-133 are incorporated into DOE's financial assistance
> regulations at 10 CFR 600.126 and 10 CFR 600.226.
>
> The single audit is intended to be a cost-effective method of auditing
> recipients of Federal funds. Independent auditors are required to
> assess the financial statements of the auditee and provide an opinion
> on the statements, schedule of expenditures and the internal controls
> and compliance in financial reporting of the auditee. The single audit
> is not intended to provide detailed coverage of each individual award,
> but an overall picture of the financial statements and internal
> controls of the recipient.
>
> The FAC serves as the central collection point, repository, and
> distribution center for single audit reports. Recipients submit paper
> copies of their financial statements with the auditor's report to the
> FAC under the cover of Standard Form SAC (SF-SAC) "Data Collection
> Form for Reporting on Audits of States, Local Governments and
> Non-profits Organizations." The SF-SAC contains information on the
> auditee, the Federal programs funds are received from, the auditor and
> the auditor's opinion of the financial statements. The SF-SAC is
> posted on the Internet at http://harvester.census.gov/sac. Paper
> copies of the audit package are forwarded to agency points of contact
> when the SF-SAC indicates that there are audit findings and the agency
> has funded the auditee during the time period the findings cover.
>
> The FAC is currently a paper and internet based system with plans to
> become completely paperless over the next few years. The web-based
> portion contains access to all SF-SACs submitted since 1997 for
> States, Local Governments and non-profit organizations. Between 1997
> and 2003, the threshold for obtaining a single audit and submission to
> the FAC was \$300,000. The threshold was raised to \$500,000 for
> fiscal years ending after December 31, 2003.
>
> **What is the Guidance Included in the FAL?**

I.  **Audit Requirements 4**

    A.  **General**

        i.  **Audit Objectives**

        ii. **Reporting Requirements**

    B.  **Recipient and Auditor Responsibilities**

        i.  **Recipient Responsibilities**

        ii. **Auditor Responsibilities**

        iii. **Responsibilities of Pass-Through Entities**

    C.  **Agency Responsibilities**

    D.  **Contracting Activity Responsibilities**

    E.  **Contracting Officer Responsibilities**

II. **Other Uses for the Clearinghouse 7**

    A.  **Pre-Award**

    B.  **During the Project Period**

    C.  **Post-Award and Close-out**

III. **Tips for Reviewing the Single Audit Report or SF-SAC 8**

> \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \*
> \* \* \* \* \* \* \* \* \* \* \*

I.  **Audit Requirements**

    A.  **General**

> All States, Local Governments and Non-Profit Organizations that expend
> over \$500,000 in Federal funds in any year are required to have a
> single audit conducted in accordance with OMB Circular A-133. This
> requirement flows down to subrecipients that meet the dollar
> threshold. An independent auditor shall perform the audit in
> accordance with the Government Auditing Standards and must: 1) audit
> and provide opinions on the fair presentation of the financial
> statements and the schedule of expenditures of Federal awards; 2) gain
> an understanding of internal control over Federal programs and 3)
> audit and provide an opinion on compliance with requirements for major
> programs.
>
> Any entity that does not meet the threshold for expenditures is not
> required by OMB Circular A-133 to have a single audit performed.
> However, if a Contracting Officer determines special circumstances
> make a review or audit necessary, such a requirement should be
> included in the terms and conditions of the award as a special
> condition.

i.  **Audit Objective**

> The single audit provides an independent, cost-effective tool for
> obtaining information on the recipient's financial management
> practices and administration of Federal funds. The audit does not
> provide detailed information on individual awards but will show
> whether or not the recipient has an adequate accounting system and
> management controls, financial statements prepared in accordance with
> general accepted practices, and accurate and reliable reports and
> expenditure of Federal funds in accordance with Federal laws and
> regulations.

ii. **Reporting Requirements**

> The Single Audit Report is submitted to the Federal Audit
> Clearinghouse (<http://harvester.census.gov/sac>) via the Internet and
> Standard Form SAC (SF-SAC) "Data Collection Form for Reporting on
> Audits of States, Local Governments and Non-profits Organizations."
>
> The single audit report includes:

-   the financial statements;

-   a schedule of expenditures of Federal awards;

-   auditor's opinions on the fair presentation of the financial
    statements and schedule of expenditures of Federal awards;

-   auditor's report on internal control and compliance pertaining to
    financial reporting;

-   auditor's report on internal control and opinion on compliance
    pertaining to major programs;

-   auditor's schedule of findings and questioned costs;

-   auditee's corrective action plans; and

-   a summary schedule of prior audit findings which includes planned
    and completed corrective actions.

B.  **Recipient and Auditor Responsibilities**

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i.  **Recipient Responsibilities**

> Recipients are responsible for managing their Federal awards. This is
> accomplished by establishing and maintaining internal controls that
> provide assurances that all requirements can be met; establishing and
> maintaining an accounting system that uses general accepted accounting
> principles and that can adequately accumulate and segregate costs; and
> promptly and accurately preparing financial statements and other
> related documents.
>
> Recipients are responsible for identifying Federal awards received and
> expended and for preparing financial statements and a Schedule of
> Expenditures of Federal Awards. Recipients are responsible for
> ensuring that the audit required by OMB Circular A-133 is completed
> and submitted to the Clearinghouse on SF-SAC within nine months of the
> end of its fiscal year.
>
> Recipients are responsible for retaining an independent auditor;
> providing the auditor with all necessary information for the audit;
> and submitting the audit to the Clearinghouse.
>
> Recipients are responsible for follow-up and corrective action on all
> audit findings. As part of this responsibility, the recipient shall
> prepare a summary schedule of prior audit findings. The recipient
> shall also prepare a corrective action plan for current year audit
> findings. The summary schedule of prior audit findings shall report
> the status of all audit findings included in the prior audit\'s
> schedule of findings and questioned costs relative to Federal awards.
> The summary schedule shall also include audit findings reported in the
> prior audit\'s summary schedule of prior audit findings except audit
> findings listed as corrected. Subpart C, Section .315 of OMB Circular
> A-133 provides specifics on the summary schedule and the correction
> action plan.
>
> Recipients are also responsible for monitoring sub-recipients that are
> required to submit an audit based on the expenditure of Federal funds
> under their project.

ii. **Auditor Responsibilities**

> The auditor is responsible for performing the audit in accordance with
> generally accepted government auditing standards, i.e. "The Yellow
> Book"; assessing whether the auditee has complied with laws,
> regulations and agreement provisions that have a direct effect on the
> Federal programs where funds have been expended; testing the internal
> controls and financial management systems; and follow-up on prior
> audit findings and assess the reasonableness of the corrective plans
> and actions.
>
> The auditor is responsible for preparing a report which includes an
> opinion on whether the financial statements are presented fairly;
> statements on internal controls; a statement on compliance which
> includes an opinion as to whether the auditee complied with the law,
> regulations and agreement provisions; and a schedule of findings.
>
> Audit findings are required to include: (1) a deficiency in internal
> controls; (2) a material noncompliance with the laws, regulations or
> agreement provisions; (3) detected fraud; (4) misrepresentation of the
> status of a prior finding; (5) questioned costs which exceed \$10,000
> for non-major programs; and (6) questioned costs which exceed \$10,000
> for each type of compliance requirement for major programs.
>
> The auditor is required to assist the recipient in the preparation of
> SF-SAC by completed specific components and sections.

iii. **Responsibilities of Pass-Through Entities**

> A pass-through entity is responsible for monitoring its
> subrecipient(s) and ensuring that those that expend Federal funds meet
> the requirements of OMB Circular A-133. A pass-through entity is also
> required for preparing management decision(s) on subrecipient audit
> findings.

A.  **Agency Responsibilities**

> Federal agencies are responsible for ensuring that audits are
> completed and reports received in a timely manner and in accordance
> with the requirements of this part; for providing technical advice and
> counsel to auditees and auditors as requested; and for issuing a
> management decision on audit findings within six months after receipt
> of the audit report; and for ensuring that the recipient takes
> appropriate and timely corrective action. Agencies are also
> responsible for providing annual updates to the A-133 compliance
> supplement.
>
> An agency may have additional responsibilities depending on the amount
> of funding provided to a recipient. An agency is given the designation
> of cognizant agency or oversight agency if it has provided the most
> direct funding to the recipient. The cognizant designation is used
> when the funding level is over \$25 million.
>
> If a program specific audit is required, the agency is responsible for
> all levels of agency responsibilities. This includes providing program
> specific audit requirements.

B.  **Contracting Activity Responsibilities**

> Each Contracting Activity is responsible for ensuring agency
> compliance with the requirements of OMB Circular A-133 at the local
> level. Each Contracting Activity should designate a responsible person
> for retrieving audits with findings under that activity's cognizance.
> The named person will be required to have a password and user ID for
> the secured portion of Clearinghouse database. Passwords and user IDS
> should be coordinated through Jacqueline Kniskern.
>
> Each Contracting Activity should implement and maintain a tracking
> system that ensures that audit findings and recommendations are
> monitored through resolution for each recipient that reports audit
> findings that affect awards made at that activity. SF-SAC Part III,
> Item 9 identifies the Federal agencies which have relevant findings in
> the audit report. The tracking system should be able to track the
> recipient, the fiscal year(s) and the stage of completion of the
> correction action plan(s). The system should be searchable to aid in
> the completion of management reports required by OMB Circular A-133.

C.  **Contracting Officer Responsibilities**

> The Contracting Officer is responsible for including the appropriate
> audit requirements in the award instrument; monitoring compliance with
> audit requirements; reviewing problem audits; and approving and
> monitoring corrective action plans to resolve audit findings and
> recommendations. The Contracting Officer should ensure that audits are
> completed and submitted as part of the administration of the award's
> reporting requirements.

II. **Other Uses for the Clearinghouse**

    A.  **Pre-Award**

> Contracting Officers are responsible for determining the business and
> financial management capabilities of potential recipients. The SF-SAC
> in the Clearinghouse database can assist the Contracting Officer in
> making the determination that a potential recipient has an acceptable
> accounting system and internal controls.
>
> Contracting Officers should check the database for previous audit
> reports, questioned costs, corrective action plans and their
> resolution and document the file with the findings from the review.
> Copies of the supporting audits may be obtained from the Clearinghouse
> if not previously received by the Contracting Officer.
>
> Potential recipients with prior audit findings and corrective action
> plans should be considered for special conditions, payment by
> reimbursement or other controls to ensure that the funding is properly
> used.

B.  **During the Project Period**

> Continuation Awards -- The Clearinghouse should be checked just as in
> the pre-award phase. Recipients that were held to special conditions
> or controls and that have shown improvement in their audits, should
> have those conditions or controls lessened or removed. New conditions
> or controls should be placed on recipients that have had negative
> audit findings since the start of the project or that have not
> submitted the audit(s).
>
> **C. Post-Award and Close-out**
>
> Audits should be reviewed during the close-out process to ascertain if
> any negative audit findings will affect the agreement. An agreement
> should not be retired if the audit findings would impact the budget or
> other terms and conditions.
>
> **III. Tips for Reviewing the Single Audit Report or SF-SAC**
>
> Page I identifies the organization audited and the auditor, the fiscal
> year of the audit and the period covered by the audit.
>
> Page 2 identifies which grant making agency has cognizance over the
> organization and information on the audit itself. Part II, Financial
> Statements, will identify the outcome of the audit and the type of
> opinion provided by the auditor. The best audit is the unqualified
> opinion; the other types indicate a problem of some type. Part III,
> Federal Programs, identify which agencies have provided funding that
> falls under an audit finding.
>
> Page 3 continues Part III and provides more information about Federal
> Awards expended during that fiscal year/audit period. Specific
> findings on each Federal Program and/or award are identified.
>
> When an audit is submitted with a finding, the financial statements
> and audit are provided to the agencies that provided funding for that
> fiscal year.