GAO

United States General Accounting Office

a

Testimony

Before the Subcommittee on Government Efficiency, 

Financial Management and Intergovernmental Relations, 

Committee on Government Reform, House of 

Representatives 

For Release on Delivery 

Expected at 10 a.m. EDT

Wednesday, 

June 26, 2002

SINGLE AUDIT 

Single Audit Act 

Effectiveness Issues

Statement of Sally E. Thompson 

Director, Financial Management and Assurance 

GAO-02-877T
Page 1 GAO-02-877T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to (1) discuss our report,1

 which is being 

released at this hearing, on the efforts of the Departments of Education, 

Housing and Urban Development (HUD), and Transportation to ensure that 

federal award recipients take timely and appropriate actions to correct all 

single audit findings, and (2) highlight three issues that merit additional 

attention to ensure that single audit efforts are achieving the full benefits 

envisioned in the act. 

Our review of the efforts of Education, HUD, and Transportation to ensure 

that federal award recipients corrected single audit findings generally 

found a lack of the required documentation of management decisions on 

audit findings and the evaluation of and conclusions on the adequacy of 

recipient actions to correct single audit findings. In commenting on the 

report, Education and HUD agreed with the findings and are moving 

forward to implement the recommendations. Transportation’s comments 

raised several issues concerning both the scope of our audit work and the 

appropriateness of our conclusions and recommendations. Despite the 

comments and the issues raised, we continue to believe that our 

conclusions are sound and that the recommendations for agency actions 

are needed to help ensure the overall effectiveness of agencies’

implementation of the Single Audit Act and their consideration and use of 

single audit findings.

The Federal Audit Clearinghouse, the organization the Office of 

Management and Budget (OMB) designated to receive single audit reports 

from federal award recipients, received about 34,000 single audit reports 

during calendar year 2000. About 5,500 of these reports contained audit 

findings. Despite these impressive figures, several single audit-related 

issues merit additional attention. These issues involve questions about 

whether (1) all required single audits are performed, (2) federal award 

recipients are adequately monitoring subrecipient2

 use of federal awards 

and the correction of single audit findings, and (3) the audits are performed 

in accordance with government auditing standards. 

1

U.S. General Accounting Office, Single Audit: Actions Needed to Ensure That Findings 

Are Corrected, GAO-02-705 (Washington, D.C.: June 26, 2002). 

2

A subrecipient is a nonfederal entity that expends federal awards received from another 

nonfederal entity (i.e., the federal award recipient) that received awards directly from a 

federal agency to carry out a federal program. 
Page 2 GAO-02-877T 

According to OMB, federal awards for fiscal year 2001 totaled about 

$325 billion of the $1.8 trillion federal budget. These awards include grants, 

loans, loan guarantees, property, cooperative agreements, interest 

subsidies, insurance, food commodities, and direct appropriations and 

federal cost reimbursements. The Single Audit Act, passed in 1984 and 

amended in 1996, is intended to, among other things, promote sound 

financial management, including effective internal controls, with respect to 

federal awards administered by state and local governments and nonprofit 

organizations. Under OMB Circular A-133, Audits of States, Local 

Governments, and Non-Profit Organizations, those governments or 

organizations that expend $300,000 or more in federal awards during the 

fiscal year shall (1) maintain internal control for federal programs, 

(2) comply with laws, regulations, and the provisions of contracts or grant 

agreements, (3) prepare appropriate financial statements, including the 

Schedule of Expenditures of Federal Awards, (4) ensure that the required 

single audits are properly performed and submitted when due, and 

(5) follow up and take corrective actions on audit findings. 

Three Agencies’

Practices to Ensure 

Correction of Single 

Audit Findings

As discussed in the report we are releasing today, our work to review 

agency actions to ensure that recipients take timely and appropriate 

corrective actions to fix audit findings contained in single audit reports 

identified a number of fundamental concerns. Education, HUD, and 

Transportation had procedures in place to establish responsibility for 

identifying and reviewing single audit findings and for communicating that 

information to appropriate officials for action. However, the audit files at 

these agencies generally did not contain documentary evidence that the 

agencies had prepared management decisions, as required by OMB 

Circular A-133, to notify the recipients of the corrective actions the federal 

agencies deemed necessary to correct the audit findings. Also, the files 

generally did not contain evidence that agency personnel had evaluated 

and concluded on the adequacy of the recipients’ actions to correct the 

findings contained in single audit reports. 

OMB Circular A-133 requires each federal agency to issue a written 

management decision on audit findings within 6 months of the receipt of 

the recipient’s single audit report. (It is important to note that as many as 

15 months could pass after the recipient’s year-end date before the Single 

Audit Act, as amended, requires a management decision. This occurs 

because the legislation gives recipients up to 9 months after the period 

audited to file their single audit reports, and agencies have an additional 6 

months to issue the management decisions.) These decisions document 
Page 3 GAO-02-877T 

management’s conclusions on and notification to recipients on the 

adequacy of their planned, in progress, or completed actions to correct 

audit findings. In order to gauge agencies’ practices in this area, we 

selected the 10 grantees awarded the most money for the two largest 

programs at each of the three agencies. Our analysis of actions related to 

the 20 single audits from each agency showed that collectively they had 

issued management decisions for only 75 (31 percent) of the 246 audit 

findings contained in the single audit reports included in our review. 

The agencies noted several reasons for not preparing written management 

decisions including that (1) they considered the audit findings to be 

insignificant or not serious, (2) the single audit report stated that the 

recipient had corrected the finding prior to the report’s issuance, and

(3) the subsequent year’s single audit report indicated that the recipient had 

corrected the finding. In our view, none of the reasons cited justify the 

nonissuance of a management decision. For example, by including a 

finding in a single audit report, auditors are indicating that the finding is 

significant since government auditing standards require auditors to report 

all significant findings in the report. The standards identify other means of 

communicating insignificant findings. Regarding the use of subsequentyear single audit reports to justify the nonissuance of a management 

decision, it should be noted that single audit reports must be issued no later 

than 9 months after the recipient’s year-end. By waiting for the subsequent 

year’s audit report, as many as 21 months could have expired from the end 

of the audit period for which the finding was initially reported to the receipt 

of the subsequent year’s audit report. In our opinion, waiting for the 

subsequent audit report would not result in a timely notification to the 

recipient of the agency’s position on an audit finding and the recipient’s 

planned, in progress, or completed corrective actions. 

OMB Circular A-133 does not distinguish between the types of findings or 

their seriousness when requiring written management decisions. In fact, 

ensuring that reported problems have been resolved is a central 

requirement under OMB Circular A-133. The circular requires agencies to 

ensure that federal award recipients take appropriate and timely corrective 

action on audit findings. Program officials at Education, HUD, and 

Transportation told us that they follow up on the implementation of 

corrective actions through such activities as site visits, phone 

conversations, and review of the subsequent year’s single audit reports. 

However, we found very little documentation that demonstrated agency 

follow-up actions to ensure that recipients took the necessary corrective 

actions on single audit findings or the results of the follow-up activities 
Page 4 GAO-02-877T 

cited above. While the audit files contained copies of recipient documents 

and other records, the files did not contain agency evaluations of or 

conclusions on the adequacy of the recipient actions cited in those records. 

This type of documentation is critical because each of the agencies we 

reviewed relied heavily on program, regional, or field offices to ensure that 

corrective actions occurred, yet none required reporting on the corrective 

action status of all single audit findings. We believe that the follow-up 

efforts should be documented and that doing so is a key to ensuring that 

agency offices perform their responsibilities to help ensure that recipients 

take all necessary corrective actions. 

Single audits provide valuable information that agency managers can use to 

make operating decisions, monitor performance, and allocate resources. 

However, discussions with officials at each of the three agencies revealed 

that, even when program or other offices had information on single audit 

results and recipient actions to correct single audit findings, this 

information was not communicated to top-level agency management for 

review, analysis, and possible action. This reporting can strengthen 

accountability and oversight by providing management with information 

useful in the analyses of both programwide problems and recurring 

problems at specific recipients. Further, it can provide management 

officials with information relevant to agency efforts to reduce improper 

payments —a key element of The President’s Management Agenda, Fiscal 

Year 2002, initiative to improve financial performance. 

The report we are issuing today contains recommendations that call for the 

following actions by the Secretaries of Education, HUD, and 

Transportation. 

• Ensure that the agency has established and follows guidance to address 

the OMB Circular A-133 requirements for all agencies whose awards are 

subject to the Single Audit Act, as amended. This guidance should 

address areas such as (1) preparing and issuing timely management 

decisions that clearly communicate the results of agency analyses of 

single audit findings and the adequacy of corrective actions 

implemented or planned by the recipient, (2) performing follow-up 

procedures to ensure that the recipient implemented adequate 

corrective action on a timely basis, and (3) documenting the results of 

evaluations of and conclusions on recipients’ actions to correct audit 

findings. 
Page 5 GAO-02-877T 

• Implement policies and procedures for reporting information to toplevel agency management on the (1) types and causes of findings 

identified in single audit reports and (2) status of corrective actions. 

Other Single Audit 

Issues

Aside from the federal agencies’ responsibility for taking all necessary 

actions to ensure that recipients implement timely and appropriate 

corrective actions to fix single audit findings, a number of other single 

audit-related issues exist. These include questions about whether 

• all required single audits are conducted, 

• recipients perform the required monitoring of subrecipients’ uses of 

federal awards and follow up to ensure that they take timely and 

appropriate corrective actions on audit findings, and 

• all single audits comply with government auditing standards. 

The Single Audit Act, as amended, requires audits by recipients that expend 

$300,000 or more in federal awards during the fiscal year. Currently, the 

federal government does not know or have a method for determining the 

universe of recipients and subrecipients that meet this $300,000 threshold. 

In general, while the federal government does have disbursement systems 

that can identify amounts the federal government awards recipients, it does 

not have a system or systems to accumulate, track, and report on amounts 

actually expended by award recipients and subrecipients across the federal 

government. As a result, it is not possible to determine whether required 

single audits occur, identify recipients and subrecipients that have not had 

required single audits, or develop adequate follow-up systems to ensure 

that all required audits occur. Thus, in many respects, what we have is an 

honor system as to which recipients are arranging for single audits. 

This information on the audit universe is important if federal agencies are 

to have any assurance that recipients and subrecipients receiving federal 

awards are receiving the required audits of their financial and internal 

control systems and of their compliance with applicable program laws and 

regulations. In addition, by ensuring that all required audits are conducted, 

federal managers will receive more complete information on audit findings 

useful in their governmentwide, agencywide, and recipient-specific 

analyses of single audit results and the $325 billion in federal awards. 
Page 6 GAO-02-877T 

Under OMB Circular A-133, federal agencies are to receive single audit 

reports with findings relating only to award recipients that received federal 

awards directly from the agencies. When these recipients, such as states, 

forward awards to subrecipients such as municipalities, counties, or local 

governmental units, it becomes the recipient’s responsibility under the 

circular to make sure that the subrecipients obtain single audits and that 

they take appropriate action to correct single audit findings. 

A review of the Federal Audit Clearinghouse database3

 for calendar year 

2000 showed about 380 cases where the auditors reported that award 

recipients were not adequately monitoring their subrecipients to ensure 

that they complied with all of the requirements of the Single Audit Act, as 

amended. While a very small percentage of the total single audits, these 

cases can be significant because they often represent recipients that 

receive large amounts of federal awards, such as states, and pass those 

awards to subrecipients for program performance purposes. Therefore, it 

is very important for federal agencies to have assurances that the recipients 

take actions to ensure that their subrecipients take appropriate and timely 

actions to correct all single audit findings. Currently, federal agencies do 

not receive information on recipients’ evaluations of and conclusions on 

the appropriateness of subrecipient actions to correct findings identified in 

single audit reports. This information is important from a program 

management standpoint because it could identify areas where the federal 

government needs to increase its oversight efforts or develop and issue 

guidance for recipient and subrecipient use when participating in federal 

programs and using federal awards.

Single audit quality has been a long-standing area of concern and one about 

which questions have surfaced since the passage of the Single Audit Act in 

1984. In this regard, OMB Circular A-133 requires that cognizant agencies 

(i.e., those agencies with specific single audit oversight responsibilities for 

recipients expending more than $25 million annually in federal awards) 

conduct or obtain quality control reviews of selected single audits. 

3

The Federal Audit Clearinghouse single audit database was established as a result of the 

Single Audit Act Amendments of 1996 and contains summary information on the auditor, the 

recipient and its federal programs, and the audit results. 
Page 7 GAO-02-877T 

Quality control reviews are reviews of the audit work supporting an 

individual audit assignment. They are performed by reviewing the 

independent auditor’s working papers. In our recent survey,4

 which we 

conducted at your request, respondents reported that federal agency 

inspectors general from 10 agencies participated on 109 quality control 

reviews during fiscal year 2001. However, this total may be overstated 

since offices of inspectors general occasionally perform joint reviews and 

our survey did not capture information on the extent of these collaborative 

efforts. The survey responses noted that the reviews identified a range of 

audit problems including those involving internal control and/or 

compliance testing performed by the auditors and auditor compliance with 

government auditing standards. While this limited information on the 

current audit quality problems cannot be used to project to or judge the 

quality of all single audits performed, it at least raises the possibility that 

problems continue to exist. OMB and federal agencies have recognized 

this potential problem, but a solution or approach to evaluating the overall 

quality of single audits conducted and developing a methodology to 

address all problems identified has not yet been developed. 

Mr. Chairman, this concludes my statement. I would be happy to answer 

any questions you or other members of the subcommittee may have. 

Contact and 

Acknowledgments

For information about this statement, please contact Sally Thompson, 

Director, Financial Management and Assurance, at (213) 830-1065 or at 

thompsons@gao.gov. Individuals who made key contributions to this 

testimony include Tom Broderick, Marian Cebula, and Perry Datwyler. 

4

U.S. General Accounting Office, Single Audit: Survey of CFO Act Agencies, GAO-02-376

(Washington, D.C.: Mar. 15, 2002).

(193040)