EXECUTIVE OFFICE OF THE PRESIDENT
                     OFFICE OF MANAGEMENT AND BUDGET
                                    
                              March 8, 1990

                                                   OMB CIRCULAR NO. A-133

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT:  Audits of Institutions of Higher Education and Other
          Nonprofit Organizations

1.   Purpose. Circular A-133 establishes audit requirements and
defines Federal responsibilities for implementing and monitoring
such requirements for institutions of higher education and other
nonprofit institutions receiving Federal awards.

2.   Authority.  Circular A-133 is issued under the authority of
the Budget and Accounting Act of 1921, as amended; the Budget and
Accounting Procedures Act of 1950, as amended; Reorganization Plan
No. 2 of 1970; and Executive Order No. 11541.

3.   Supersession.  Circular A-133 supersedes Attachment F,
subparagraph 2h, of Circular A-110, "Uniform Administrative
Requirements for Grants and other Agreements with Institutions of
Higher Education, Hospitals, and other Nonprofit Organizations."

4.   Applicability.  The provisions of Circular A-133 apply to:

     a.   Federal departments and agencies responsible for
administering programs that involve grants, cost-type contracts and
other agreements with institutions of higher education and other
nonprofit recipients.

     b.   Nonprofit institutions, whether they are recipients,
receiving awards directly from Federal agencies, or are sub-
recipients, receiving awards directly through other recipients.

     These principles, to the extent permitted by law, constitute
guidance to be applied by agencies consistent with and within the
discretion, conferred by the statutes governing agency action.

5.   Requirements and Responsibilities.  The specific requirements
and responsibilities of Federal departments and agencies and
institutions of higher education and other nonprofit institutions
are set forth in the attachment.

6.   Effective Date.  The provisions of Circular A-133 are
effective upon publication and shall apply to audits of nonprofit
institutions for fiscal years that begin on or after January l,
1990.  Earlier implementation is encouraged.  However, until this
Circular is implemented, the audit provisions of Attachment F to
Circular A- 110 shall continue to be observed.
7.   Policy Review (Sunset) Date.  Circular A-133 will have a
policy review three years from the date of issuance.

8.   Inquiries.  Further information concerning Circular A-133 may
be obtained by contacting the Financial Management Division, Office
of Management and Budget, Washington D.C. 20503, telephone (202)
395-3993.



                                   Richard G. Darman
                                   Director


OMB CIRCULAR NO. A-133
AU              DITS OF INSTITUTIONS OF HIGHER EDUCATION 
AN                   D OTHER NONPROFIT ORGANIZATIONS

                                ATTACHMENT

1.   Definitions.  For the purposes of this Circular, the following
definitions apply:

     a.   "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.

     b.   "Cognizant agency" means the Federal agency assigned by
the Office of Management and Budget to carry out the
responsibilities described in paragraph 3 of this Attachment.

     c.   "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
paragraph 12(b) and 15, respectively, of this Attachment.  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 paragraph 12(b) or issuing the reports
required in paragraph 15 in a timely, manner.

     d.   "Federal agency" has the same meaning as the term
"agency" in Section 551(l) of Title 5, United States Code.

     e.   "Federal Financial Assistance."

          (1)  "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;
               --   other non-cash assistance.

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

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

          (4)  The granting agency is responsible for identifying
the source of funds awarded to recipients; the recipient is
responsible for identifying the source of funds awarded to sub-
recipients.

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

     g.   "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.

     h.   "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 are obtained, maintained, and fairly
disclosed in reports.

i.   "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 larger of three percent of total Federal
funds expended or $100,000, on which the auditor will be required
to express an opinion as to whether the major program is being
administered in compliance with laws and regulations.

     Each of the following categories of Federal awards shall
constitute a major program where total expenditures are the larger
of three percent of total Federal funds expended or $100,000:

          -    Research and Development.

          -    Student Financial Aid.

          -    Individual awards not in the student aid or research
and development category.

     j.   "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.


     k.   "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 Circular A- 128 "Audits of State and ~cal
Governments." The term does not include hospitals which are not
affiliated with an institution of higher education, or State and
local governments and Indian tribes covered by Circular A-128
"Audits of State and Local Governments."

     1.   "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. The duties of the oversight agency are described
in paragraph 4 of this Attachment.

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

     n.   "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.

     o.   "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 of similar awards
to students on a competitive basis, or for specified studies or
research.

     p.   "Sub-recipient" means any person or government
department, agency, establishment, or nonprofit organization that
receives 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.

     q.   "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.

2.   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 Circular.  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 the
Circular 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 Circular 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 the
Office of Management and Budget (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 in a
separate supplement to this Circular.

          (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 Circular
unless otherwise indicated.  The Office of Management and Budget
will coordinate changes in agency assignments.

3.   Cognizant Agency Responsibilities.  A 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
Circular.

     b.   Provide technical advice and liaison to institutions and
independent auditors.

     c.   Obtain or make quality control reviews of selected audits
made by non-Federal 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 Circular.  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 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 Circular, so that the additional audits or reviews
build upon audits performed in accordance with the Circular.


     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.

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

4.   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.

5.   Recipient Responsibilities.  A recipient that receives a
Federal award and provides $25,000 or more of it during its fiscal
year to a subrecipient shall:

     a.   Ensure that the nonprofit institution sub-recipients that
receive $25,000 or more have met the audit requirements of this
Circular, and that sub-recipients subject to O?(B Circular A-128
have met the audit requirements of that Circular;

     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 Circular.

6.   Relation to Other Audit Requirements.

     a.   An audit made in accordance with this Circular shall be
in lieu of any financial audit required under individual Federal
awards.  To the extent that an audit made in accordance with this
Circular provides Federal agencies with the information and
assurances they need to carry out their overall responsibilities,
they shall rely upon and use such information.  However, a Federal
agency shall make any additional audits or reviews necessary to
carry out responsibilities under Federal law and regulation.  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 by Federal audit agencies should consider
the extent to which reliance can be placed upon work performed by
other auditors.  Such auditors include State, local, Federal, 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 Circular do not limit the
authority of Federal agencies to make or contract for audits and
evaluations of Federal awards, nor do they limit the authority of
any Federal agency Inspector General or other Federal official.

     d.   The provisions of this Circular do not authorize any
institution or sub-recipient thereof to constrain Federal agencies,
in any manner, from carrying out additional audits, evaluations or
reviews.

     e.   A Federal agency that makes or contracts for audits, in
addition to the audits made by recipients pursuant to this
Circular, shall, consistent with other applicable laws and
regulations, arrange for funding the cost of such additional
audits.  Such additional audits or reviews include financial,
performance audits and program evaluations.

7.   Frequency of Audit.  Audits shall usually be performed
annually but not less frequently than every two years.

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

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

          --   withholding or disallowing overhead costs; or

          --   suspending Federal awards until the audit is made.

9.   Audit Costs.  The cost of audits made in accordance with the
provisions of this Circular 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 Circular A-21, "Cost Principles for Universities" or
Circular A-122, "Cost Principles for Nonprofit Organizations," FAR
Subpart 31, or other applicable cost principles or regulations.


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

11.  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 Circular.

     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 time frames 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 section (1), above, 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.


12.  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 Circular 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 overnight agency. Those auditors who assume responsibility for
any or all of the reports called for by paragraph 15 should follow
guidance set forth in Government Auditing Standards in using work
performed by others.

     b.   The 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 direct and material effect on its
financial statement amounts and on each major Federal program.

13.  Internal Controls Over Federal Awards Compliance Reviews.

     a.   General.  The independent auditor shall determine and
report on whether the recipient has an internal control structure
to provide reasonable assurance that it is managing Federal awards
in compliance with applicable laws, regulations, and contract
terms, and that it safeguards Federal funds.  In performing these
reviews, independent auditors should rely upon work performed by a
recipient's internal auditors to the maximum extent possible.  The
extent of such reliance should be based upon the Government
Auditing Standards.

     b.   Internal Control Review.

          (1)  In order to provide this assurance on internal
controls, the auditor must obtain an understanding of the internal
control structure and assess levels of internal control risk. 
After obtaining an understanding of the controls, the assessment
lust be made whether or not the auditor intends to place reliance
on the internal control structure.

          (2)  As part of this review, the auditor shall:

               (a)  Perform tests of controls to evaluate the
effectiveness of the design and operation of the policies and
procedures in preventing or detecting material noncompliance. 
Tests of controls will not be required for those areas where the
internal control structure policies and procedures are likely to be
ineffective in preventing or detecting noncompliance, in which case
a reportable condition or a material weakness should be reported in
accordance with paragraph 15 c(2) of this Circular.

               (b)  Review the recipients system for monitoring
sub-recipients and obtaining and acting on sub-recipient audit
reports.

               (c)  Determine whether controls are in effect to
ensure direct and indirect costs were computed and billed in
accordance with the guidance provided in the general requirements
section of the compliance supplement to this Circular.

     c.   Compliance Review.

          (1)  The auditor shall determine whether the recipient
has complied with laws and regulations that may have a direct and
material effect on any of its major Federal programs.  In addition,
transactions selected for non-major programs shall be tested for
compliance with Federal laws and regulations that apply to such
transactions.

          (2)  In order to determine which major programs are to be
tested for compliance, recipients 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, through other State and local
governments or other recipients.  To assist recipients in
identifying Federal awards, Federal agencies and primary recipients
shall provide the Catalog of Federal Domestic Assistance (CFDA)
numbers to the recipients when making the awards.

(3)  The review must include the selection of an adequate number of
transactions from each major Federal financial assistance program
so that the auditor obtains sufficient evidence to support the
opinion on compliance required by paragraph 15c(3) of this
Attachment.  The selection and testing of transactions shall be
based on the auditors' professional judgment considering such
factors as the amount of expenditures for the program; 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, or system reviews
required by Federal Acquisition Regulations); the extent to which
the program is carried out through sub-recipients; 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.

          (4)  In making the test of transactions, the auditor
shall determine whether:

               --   the amounts reported as expenditures were for
                    allowable services, and

               --   the records show that those who received
                    services or benefits were eligible to receive
                    them.

          (5)  In addition to transaction testing, the auditor
shall determine whether:

               --   matching requirements, levels of effort and
                    earmarking limitations were met,

               --   Federal financial reports and claims for
                    advances and reimbursement contain information
                    that is supported by books and records from
                    which the basic financial statements have been
                    prepared, and

               --   amounts claimed or used for matching were
                    determined in accordance with (1) OMB Circular
                    A-21, "Cost Principles for Educational
                    Institutions"; (2) matching or cost sharing
                    requirements in Circular A- 110, "Uniform
                    Requirements for Grants and Agreements with
                    Institutions of Higher Education, Hospitals
                    and Other Nonprofit Organizations"; (3)
                    Circular A-122, "Cost Principles for Nonprofit
                    Organizations"; (4) FAR subpart 31 cost
                    principles; and (5) other applicable cost
                    principles or regulations.

          (6)  The principal compliance requirements of the largest
Federal programs may be ascertained by referring to the "Compliance
Supplement for Single Audits of Educational Institutions and Other
Nonprofit Organizations," and 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 Supplements, the auditor should ascertain
compliance requirements by reviewing the statutes, regulations, and
agreements governing individual programs.          

          (7)  Transactions related to other awards 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.

14.  Illegal Acts.  If, during or in connection with the audit of
a nonprofit institution, the auditor becomes aware of illegal acts,
such acts shall be reported in accordance with the provisions of
the Government Auditing Standards.

15.  Audit Reports.

     a.   Audit reports must be prepared at the completion of the
audit.

     b.   The audit report shall state that the audit was made in
accordance with the provisions of this Circular.

     c.   The report shall be made up of at least the following
three parts:

          (1)  The financial statements and a schedule of Federal 
awards and the auditor's report on the statements and the schedule. 
The schedule of Federal awards should identify major programs and
show the total expenditures for each program.  Individual major
programs other than Research and Development and Student Aid should
be listed by catalog number as identified in the Catalog of Federal
Domestic Assistance.  Expenditures for Federal programs other than
major programs shall be shown under the caption "other Federal
assistance."  Also, the value of non-cash assistance such as loan
guarantees, food commodities or donated surplus properties or the
outstanding balance of loans should be disclosed in the schedule.

          (2)  A written report of the independent auditor's 
understanding of the internal control structure and the assessment
of control risk.  The auditor's report should include as a minimum:
(1) the scope of the work in obtaining understanding of the
internal control structure and in assessing the control risk, (2)
the nonprofit institution's significant internal controls or
control structure including the controls established to ensure
compliance with laws and regulations that have a material impact on
the financial statements and those that provide reasonable
assurance that Federal awards are being managed in compliance with
applicable laws and regulations, and (3) the reportable conditions,
including the identification of material weaknesses, identified as
a result of the auditor's work in understanding and assessing the
control risk.  If the auditor limits his/her the internal control
structure for any reason, the circumstances should be disclosed in
the report.

          (3)  The auditor's report on compliance containing:

          --   An opinion as to whether each major Federal program
               was being administered in compliance with laws and
               regulations applicable to the matters described in
               paragraph 13(c) (3) of this Attachment, including
               compliance with laws and regulations pertaining to
               financial reports and claims for advances and
               reimbursements;

          --   A statement of positive assurance on those items
               that were tested for compliance and negative
               assurance on those items not tested;

          --   Material findings of noncompliance presented in 
               their proper perspective:

               o    The size of the universe in number of items
                    and dollars,

               o    The number and dollar amount of transactions
                    tested by the auditors,

               o    The number and corresponding dollar amount of
                    instances of noncompliance;

          --   Where findings are specific to a particular Federal
               award, an identification of total amounts
               questioned, if any, for each Federal award, as a
               result of noncompliance and the auditor's
               recommendations for necessary corrective action.

     c.   The three parts of the audit report may be bound into a
single document, or presented at the same time as separate
documents.

     d.   Nonmaterial findings need not be disclosed with the
compliance report but should be reported in writing to the
recipient in a separate communication.  The recipient, in turn,
should forward the findings to the Federal grantor agencies or
subgrantor sources.

     e.   All fraud or illegal acts or indications of such acts,
including all questioned costs found as the result of these acts
that auditors become aware of, may be covered in a separate written
report submitted in accordance with the Government Auditing
Standards.


     f.   The auditor's report should disclose the status of known
but uncorrected significant material findings and recommendations
from prior audits that affect the current audit objective as
specified in the Government Auditing Standards.

     g.   In addition to the audit report, the recipient shall
provide a report of its 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.

     h.   Copies of the audit report shall be submitted in
accordance with the reporting standards for financial audits
contained in the Auditing Standards.  Sub-recipient auditors shall
submit copies to recipients that provided Federal awards.  The
report shall be due within 30 days after the completion of the
audit, but the audit should be completed and the report submitted
not later than 13 months after the end of the recipient's fiscal
year unless a longer period is agreed to with the cognizant or
oversight agency.

     i.   Recipients of more than $100,000 in Federal awards 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 audit
reports on file.

     j.   Recipients shall keep audit reports, including
subrecipient reports, on file for three years from their issuance.

16.  Audit Resolution.

     a.   As provided in paragraph 3, the cognizant agency shall be
responsible for ensuring 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 the agency.
Alternate arrangements may be made on case-by-case basis by
agreement among the agencies concerned.

     b.   A management decision shall be made within six months
after receipt of the report by the Federal agencies responsible for
audit resolution.  Corrective action should proceed as rapidly as
possible.

17.  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.