Union Calendar No. 302

104TH CONGRESS

2D SESSION H. R. 3184

[Report No. 104–607]

A BILL

To streamline and improve the effectiveness of

monly referred to as the ‘‘Single Audit Act’’).chapter 75 of title 31, United States Code (comJUNE 6, 1996

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 302

104TH CONGRESS

2D SESSION H. R. 3184

[Report No. 104–607]

To streamline and improve the effectiveness of chapter 75 of title 31, United

States Code (commonly referred to as the ‘‘Single Audit Act’’).

IN THE HOUSE OF REPRESENTATIVES

MARCH 28, 1996

Mr. HORN (for himself, Mr. CLINGER, Mr. DAVIS, Mrs. MALONEY, and Mr.

PETERSON of Minnesota) introduced the following bill; which was referred

to the Committee on Government Reform and Oversight

JUNE 6, 1996

Additional sponsor: Mr. BAESLER

JUNE 6, 1996

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on March 28, 1996]

A BILL

To streamline and improve the effectiveness of chapter 75

of title 31, United States Code (commonly referred to

as the ‘‘Single Audit Act’’).

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; PURPOSES.

2 (a) SHORT TITLE.—This Act may be cited as the ‘‘Sin3 gle Audit Act Amendments of 1996’’.

4 (b) PURPOSES.—The purposes of this Act are to—

5 (1) promote sound financial management, in6 cluding effective internal controls, with respect to

7 Federal awards administered by non-Federal entities;

8 (2) establish uniform requirements for audits of

9 Federal awards administered by non-Federal entities;

10 (3) promote the efficient and effective use of

11 audit resources;

12 (4) reduce burdens on State and local govern13 ments, Indian tribes, and nonprofit organizations;

14 and

15 (5) ensure that Federal departments and agen16 cies, to the maximum extent practicable, rely upon

17 and use audit work done pursuant to chapter 75 of

18 title 31, United States Code (as amended by this Act).

19 SEC. 2. AMENDMENT TO TITLE 31, UNITED STATES CODE.

20 Chapter 75 of title 31, United States Code, is amended

21 to read as follows:

22 ‘‘CHAPTER 75—REQUIREMENTS FOR

23 SINGLE AUDITS

‘‘Sec.

‘‘7501. Definitions.

‘‘7502. Audit requirements; exemptions.

‘‘7503. Relation to other audit requirements.

‘‘7504. Federal agency responsibilities and relations with non-Federal entities.
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‘‘7505. Regulations.

‘‘7506. Monitoring responsibilities of the Comptroller General.

‘‘7507. Effective date.

1 ‘‘§ 7501. Definitions

2 ‘‘(a) As used in this chapter, the term—

3 ‘‘(1) ‘Comptroller General’ means the Comptrol4 ler General of the United States;

5 ‘‘(2) ‘Director’ means the Director of the Office

6 of Management and Budget;

7 ‘‘(3) ‘Federal agency’ has the same meaning as

8 the term ‘agency’ in section 551(1) of title 5;

9 ‘‘(4) ‘Federal awards’ means Federal financial

10 assistance and Federal cost-reimbursement contracts

11 that non-Federal entities receive directly from Federal

12 awarding agencies or indirectly from pass-through

13 entities;

14 ‘‘(5) ‘Federal financial assistance’ means assist15 ance that non-Federal entities receive or administer

16 in the form of grants, loans, loan guarantees, prop17 erty, cooperative agreements, interest subsidies, insur18 ance, food commodities, direct appropriations, or

19 other assistance, but does not include amounts re20 ceived as reimbursement for services rendered to indi21 viduals in accordance with guidance issued by the Di22 rector;

23 ‘‘(6) ‘Federal program’ means all Federal

24 awards to a non-Federal entity assigned a single
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1 number in the Catalog of Federal Domestic Assistance

2 or encompassed in a group of numbers or other cat3 egory as defined by the Director;

4 ‘‘(7) ‘generally accepted government auditing

5 standards’ means the government auditing standards

6 issued by the Comptroller General;

7 ‘‘(8) ‘independent auditor’ means—

8 ‘‘(A) an external State or local government

9 auditor who meets the independence standards

10 included in generally accepted government audit11 ing standards; or

12 ‘‘(B) a public accountant who meets such

13 independence standards;

14 ‘‘(9) ‘Indian tribe’ means any Indian tribe,

15 band, nation, or other organized group or community,

16 including any Alaskan Native village or regional or

17 village corporation (as defined in, or established

18 under, the Alaskan Native Claims Settlement Act)

19 that is recognized by the United States as eligible for

20 the special programs and services provided by the

21 United States to Indians because of their status as

22 Indians;

23 ‘‘(10) ‘internal controls’ means a process, effected

24 by an entity’s management and other personnel, de-
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1 signed to provide reasonable assurance regarding the

2 achievement of objectives in the following categories:

3 ‘‘(A) Effectiveness and efficiency of oper4 ations.

5 ‘‘(B) Reliability of financial reporting.

6 ‘‘(C) Compliance with applicable laws and

7 regulations;

8 ‘‘(11) ‘local government’ means any unit of local

9 government within a State, including a county, bor10 ough, municipality, city, town, township, parish,

11 local public authority, special district, school district,

12 intrastate district, council of governments, any other

13 instrumentality of local government and, in accord14 ance with guidelines issued by the Director, a group

15 of local governments;

16 ‘‘(12) ‘major program’ means a Federal program

17 identified in accordance with risk-based criteria pre18 scribed by the Director under this chapter, subject to

19 the limitations described under subsection (b);

20 ‘‘(13) ‘non-Federal entity’ means a State, local

21 government, or nonprofit organization;

22 ‘‘(14) ‘nonprofit organization’ means any cor23 poration, trust, association, cooperative, or other or24 ganization that—
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1 ‘‘(A) is operated primarily for scientific,

2 educational, service, charitable, or similar pur3 poses in the public interest;

4 ‘‘(B) is not organized primarily for profit;

5 and

6 ‘‘(C) uses net proceeds to maintain, im7 prove, or expand the operations of the organiza8 tion;

9 ‘‘(15) ‘pass-through entity’ means a non-Federal

10 entity that provides Federal awards to a subrecipient

11 to carry out a Federal program;

12 ‘‘(16) ‘program-specific audit’ means an audit of

13 one Federal program;

14 ‘‘(17) ‘recipient’ means a non-Federal entity that

15 receives awards directly from a Federal agency to

16 carry out a Federal program;

17 ‘‘(18) ‘single audit’ means an audit, as described

18 under section 7502(d), of a non-Federal entity that

19 includes the entity’s financial statements and Federal

20 awards;

21 ‘‘(19) ‘State’ means any State of the United

22 States, the District of Columbia, the Commonwealth

23 of Puerto Rico, the Virgin Islands, Guam, American

24 Samoa, the Commonwealth of the Northern Mariana

25 Islands, and the Trust Territory of the Pacific Is-
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1 lands, any instrumentality thereof, any multi-State,

2 regional, or interstate entity which has governmental

3 functions, and any Indian tribe; and

4 ‘‘(20) ‘subrecipient’ means a non-Federal entity

5 that receives Federal awards through another non6 Federal entity to carry out a Federal program, but

7 does not include an individual who receives financial

8 assistance through such awards.

9 ‘‘(b) In prescribing risk-based program selection cri10 teria for major programs, the Director shall not require

11 more programs to be identified as major for a particular

12 non-Federal entity, except as prescribed under subsection

13 (c) or as provided under subsection (d), than would be iden14 tified if the major programs were defined as any program

15 for which total expenditures of Federal awards by the non16 Federal entity during the applicable year exceed—

17 ‘‘(1) the larger of $30,000,000 or 0.15 percent of

18 the non-Federal entity’s total Federal expenditures, in

19 the case of a non-Federal entity for which such total

20 expenditures for all programs exceed $10,000,000,000;

21 ‘‘(2) the larger of $3,000,000, or 0.30 percent of

22 the non-Federal entity’s total Federal expenditures, in

23 the case of a non-Federal entity for which such total

24 expenditures for all programs exceed $100,000,000 but

25 are less than or equal to $10,000,000,000; or
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1 ‘‘(3) the larger of $300,000, or 3 percent of such

2 total Federal expenditures for all programs, in the

3 case of a non-Federal entity for which such total ex4 penditures for all programs equal or exceed $300,000

5 but are less than or equal to $100,000,000.

6 ‘‘(c) When the total expenditures of a non-Federal enti7 ty’s major programs are less than 50 percent of the non8 Federal entity’s total expenditures of all Federal awards (or

9 such lower percentage as specified by the Director), the

10 auditor shall select and test additional programs as major

11 programs as necessary to achieve audit coverage of at least

12 50 percent of Federal expenditures by the non-Federal en13 tity (or such lower percentage as specified by the Director),

14 in accordance with guidance issued by the Director.

15 ‘‘(d) Loan or loan guarantee programs, as specified by

16 the Director, shall not be subject to the application of sub17 section (b).

18 ‘‘§ 7502. Audit requirements; exemptions

19 ‘‘(a)(1)(A) Each non-Federal entity that expends a

20 total amount of Federal awards equal to or in excess of

21 $300,000 or such other amount specified by the Director

22 under subsection (a)(3) in any fiscal year of such non-Fed23 eral entity shall have either a single audit or a program24 specific audit made for such fiscal year in accordance with

25 the requirements of this chapter.
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1 ‘‘(B) Each such non-Federal entity that expends Fed2 eral awards under more than one Federal program shall

3 undergo a single audit in accordance with the requirements

4 of subsections (b) through (i) of this section and guidance

5 issued by the Director under section 7505.

6 ‘‘(C) Each such non-Federal entity that expends

7 awards under only one Federal program and is not subject

8 to laws, regulations, or Federal award agreements that re9 quire a financial statement audit of the non-Federal entity,

10 may elect to have a program-specific audit conducted in

11 accordance with applicable provisions of this section and

12 guidance issued by the Director under section 7505.

13 ‘‘(2)(A) Each non-Federal entity that expends a total

14 amount of Federal awards of less than $300,000 or such

15 other amount specified by the Director under subsection

16 (a)(3) in any fiscal year of such entity, shall be exempt

17 for such fiscal year from compliance with—

18 ‘‘(i) the audit requirements of this chapter; and

19 ‘‘(ii) any applicable requirements concerning fi20 nancial audits contained in Federal statutes and reg21 ulations governing programs under which such Fed22 eral awards are provided to that non-Federal entity.

23 ‘‘(B) The provisions of subparagraph (A)(ii) of this

24 paragraph shall not exempt a non-Federal entity from com25 pliance with any provision of a Federal statute or regula-
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1 tion that requires such non-Federal entity to maintain

2 records concerning Federal awards provided to such non3 Federal entity or that permits a Federal agency, pass4 through entity, or the Comptroller General access to such

5 records.

6 ‘‘(3) Every 2 years, the Director shall review the

7 amount for requiring audits prescribed under paragraph

8 (1)(A) and may adjust such dollar amount consistent with

9 the purposes of this chapter, provided the Director does not

10 make such adjustments below $300,000.

11 ‘‘(b)(1) Except as provided in paragraphs (2) and (3),

12 audits conducted pursuant to this chapter shall be con13 ducted annually.

14 ‘‘(2) A State or local government that is required by

15 constitution or statute, in effect on January 1, 1987, to un16 dergo its audits less frequently than annually, is permitted

17 to undergo its audits pursuant to this chapter biennially.

18 Audits conducted biennially under the provisions of this

19 paragraph shall cover both years within the biennial period.

20 ‘‘(3) Any nonprofit organization that had biennial au21 dits for all biennial periods ending between July 1, 1992,

22 and January 1, 1995, is permitted to undergo its audits

23 pursuant to this chapter biennially. Audits conducted bien24 nially under the provisions of this paragraph shall cover

25 both years within the biennial period.
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1 ‘‘(c) Each audit conducted pursuant to subsection (a)

2 shall be conducted by an independent auditor in accordance

3 with generally accepted government auditing standards, ex4 cept that, for the purposes of this chapter, performance au5 dits shall not be required except as authorized by the Direc6 tor.

7 ‘‘(d) Each single audit conducted pursuant to sub8 section (a) for any fiscal year shall—

9 ‘‘(1) cover the operations of the entire non-Fed10 eral entity; or

11 ‘‘(2) at the option of such non-Federal entity

12 such audit shall include a series of audits that cover

13 departments, agencies, and other organizational units

14 which expended or otherwise administered Federal

15 awards during such fiscal year provided that each

16 such audit shall encompass the financial statements

17 and schedule of expenditures of Federal awards for

18 each such department, agency, and organizational

19 unit, which shall be considered to be a non-Federal

20 entity.

21 ‘‘(e) The auditor shall—

22 ‘‘(1) determine whether the financial statements

23 are presented fairly in all material respects in con24 formity with generally accepted accounting prin25 ciples;
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1 ‘‘(2) determine whether the schedule of expendi2 tures of Federal awards is presented fairly in all ma3 terial respects in relation to the financial statements

4 taken as a whole;

5 ‘‘(3) with respect to internal controls pertaining

6 to the compliance requirements for each major pro7 gram—

8 ‘‘(A) obtain an understanding of such inter9 nal controls;

10 ‘‘(B) assess control risk; and

11 ‘‘(C) perform tests of controls unless the con12 trols are deemed to be ineffective; and

13 ‘‘(4) determine whether the non-Federal entity

14 has complied with the provisions of laws, regulations,

15 and contracts or grants pertaining to Federal awards

16 that have a direct and material effect on each major

17 program.

18 ‘‘(f)(1) Each Federal agency which provides Federal

19 awards to a recipient shall—

20 ‘‘(A) provide such recipient the program names

21 (and any identifying numbers) from which such

22 awards are derived, and the Federal requirements

23 which govern the use of such awards and the require24 ments of this chapter; and
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1 ‘‘(B) review the audit of a recipient as necessary

2 to determine whether prompt and appropriate correc3 tive action has been taken with respect to audit find4 ings, as defined by the Director, pertaining to Federal

5 awards provided to the recipient by the Federal agen6 cy.

7 ‘‘(2) Each pass-through entity shall—

8 ‘‘(A) provide such subrecipient the program

9 names (and any identifying numbers) from which

10 such assistance is derived, and the Federal require11 ments which govern the use of such awards and the

12 requirements of this chapter;

13 ‘‘(B) monitor the subrecipient’s use of Federal

14 awards through site visits, limited scope audits, or

15 other means;

16 ‘‘(C) review the audit of a subrecipient as nec17 essary to determine whether prompt and appropriate

18 corrective action has been taken with respect to audit

19 findings, as defined by the Director, pertaining to

20 Federal awards provided to the subrecipient by the

21 pass-through entity; and

22 ‘‘(D) require each of its subrecipients of Federal

23 awards to permit, as a condition of receiving Federal

24 awards, the independent auditor of the pass-through

25 entity to have such access to the subrecipient’s records
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1 and financial statements as may be necessary for the

2 pass-through entity to comply with this chapter.

3 ‘‘(g)(1) The auditor shall report on the results of any

4 audit conducted pursuant to this section, in accordance

5 with guidance issued by the Director.

6 ‘‘(2) When reporting on any single audit, the auditor

7 shall include a summary of the auditor’s results regarding

8 the non-Federal entity’s financial statements, internal con9 trols, and compliance with laws and regulations.

10 ‘‘(h) The non-Federal entity shall transmit the report11 ing package, which shall include the non-Federal entity’s

12 financial statements, schedule of expenditures of Federal

13 awards, corrective action plan defined under subsection (i),

14 and auditor’s reports developed pursuant to this section, to

15 a Federal clearinghouse designated by the Director, and

16 make it available for public inspection within the earlier

17 of—

18 ‘‘(1) 30 days after receipt of the auditor’s report;

19 or

20 ‘‘(2)(A) for a transition period of at least 2

21 years after the effective date of the Single Audit Act

22 Amendments of 1996, as established by the Director,

23 13 months after the end of the period audited; or

24 ‘‘(B) for fiscal years beginning after the period

25 specified in subparagraph (A), 9 months after the end
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1 of the period audited, or within a longer timeframe

2 authorized by the Federal agency, determined under

3 criteria issued under section 7504, when the 9-month

4 timeframe would place an undue burden on the non5 Federal entity.

6 ‘‘(i) If an audit conducted pursuant to this section dis7 closes any audit findings, as defined by the Director, in8 cluding material noncompliance with individual compli9 ance requirements for a major program by, or reportable

10 conditions in the internal controls of, the non-Federal entity

11 with respect to the matters described in subsection (e), the

12 non-Federal entity shall submit to Federal officials des13 ignated by the Director, a plan for corrective action to

14 eliminate such audit findings or reportable conditions or

15 a statement describing the reasons that corrective action is

16 not necessary. Such plan shall be consistent with the audit

17 resolution standard promulgated by the Comptroller Gen18 eral (as part of the standards for internal controls in the

19 Federal Government) pursuant to section 3512(c).

20 ‘‘(j) The Director may authorize pilot projects to test

21 alternative methods of achieving the purposes of this chap22 ter. Such pilot projects may begin only after consultation

23 with the Chair and Ranking Minority Member of the Com24 mittee on Governmental Affairs of the Senate and the Chair

25 and Ranking Minority Member of the Committee on Gov-
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1 ernment Reform and Oversight of the House of Representa2 tives.

3 ‘‘§ 7503. Relation to other audit requirements

4 ‘‘(a) An audit conducted in accordance with this chap5 ter shall be in lieu of any financial audit of Federal awards

6 which a non-Federal entity is required to undergo under

7 any other Federal law or regulation. To the extent that such

8 audit provides a Federal agency with the information it

9 requires to carry out its responsibilities under Federal law

10 or regulation, a Federal agency shall rely upon and use

11 that information.

12 ‘‘(b) Notwithstanding subsection (a), a Federal agency

13 may conduct or arrange for additional audits which are

14 necessary to carry out its responsibilities under Federal law

15 or regulation. The provisions of this chapter do not author16 ize any non-Federal entity (or subrecipient thereof) to con17 strain, in any manner, such agency from carrying out or

18 arranging for such additional audits, except that the Fed19 eral agency shall plan such audits to not be duplicative of

20 other audits of Federal awards.

21 ‘‘(c) The provisions of this chapter do not limit the

22 authority of Federal agencies to conduct, or arrange for the

23 conduct of, audits and evaluations of Federal awards, nor

24 limit the authority of any Federal agency Inspector General

25 or other Federal official.
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1 ‘‘(d) Subsection (a) shall apply to a non-Federal entity

2 which undergoes an audit in accordance with this chapter

3 even though it is not required by section 7502(a) to have

4 such an audit.

5 ‘‘(e) A Federal agency that provides Federal awards

6 and conducts or arranges for audits of non-Federal entities

7 receiving such awards that are in addition to the audits

8 of non-Federal entities conducted pursuant to this chapter

9 shall, consistent with other applicable law, arrange for

10 funding the full cost of such additional audits. Any such

11 additional audits shall be coordinated with the Federal

12 agency determined under criteria issued under section 7504

13 to preclude duplication of the audits conducted pursuant

14 to this chapter or other additional audits.

15 ‘‘(f) Upon request by a Federal agency or the Comp16 troller General, any independent auditor conducting an

17 audit pursuant to this chapter shall make the auditor’s

18 working papers available to the Federal agency or the

19 Comptroller General as part of a quality review, to resolve

20 audit findings, or to carry out oversight responsibilities

21 consistent with the purposes of this chapter. Such access to

22 auditor’s working papers shall include the right to obtain

23 copies.
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1 ‘‘§ 7504. Federal agency responsibilities and relations

2 with non-Federal entities

3 ‘‘(a) Each Federal agency shall, in accordance with

4 guidance issued by the Director under section 7505, with

5 regard to Federal awards provided by the agency—

6 ‘‘(1) monitor non-Federal entity use of Federal

7 awards, and

8 ‘‘(2) assess the quality of audits conducted under

9 this chapter for audits of entities for which the agency

10 is the single Federal agency determined under sub11 section (b).

12 ‘‘(b) Each non-Federal entity shall have a single Fed13 eral agency, determined in accordance with criteria estab14 lished by the Director, to provide the non-Federal entity

15 with technical assistance and assist with implementation

16 of this chapter.

17 ‘‘(c) The Director shall designate a Federal clearing18 house to—

19 ‘‘(1) receive copies of all reporting packages de20 veloped in accordance with this chapter;

21 ‘‘(2) identify recipients that expend $300,000 or

22 more in Federal awards or such other amount speci23 fied by the Director under section 7502(a)(3) during

24 the recipient’s fiscal year but did not undergo an

25 audit in accordance with this chapter; and
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1 ‘‘(3) perform analyses to assist the Director in

2 carrying out responsibilities under this chapter.

3 ‘‘§ 7505. Regulations

4 ‘‘(a) The Director, after consultation with the Comp5 troller General, and appropriate officials from Federal,

6 State, and local governments and nonprofit organizations

7 shall prescribe guidance to implement this chapter. Each

8 Federal agency shall promulgate such amendments to its

9 regulations as may be necessary to conform such regulations

10 to the requirements of this chapter and of such guidance.

11 ‘‘(b)(1) The guidance prescribed pursuant to subsection

12 (a) shall include criteria for determining the appropriate

13 charges to Federal awards for the cost of audits. Such cri14 teria shall prohibit a non-Federal entity from charging to

15 any Federal awards—

16 ‘‘(A) the cost of any audit which is—

17 ‘‘(i) not conducted in accordance with this

18 chapter; or

19 ‘‘(ii) conducted in accordance with this

20 chapter when expenditures of Federal awards are

21 less than amounts cited in section 7502(a)(1)(A)

22 or specified by the Director under section

23 7502(a)(3), except that the Director may allow

24 the cost of limited scope audits to monitor sub-
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1 recipients in accordance with section

2 7502(f)(2)(B); and

3 ‘‘(B) more than a reasonably proportionate share

4 of the cost of any such audit that is conducted in ac5 cordance with this chapter.

6 ‘‘(2) The criteria prescribed pursuant to paragraph (1)

7 shall not, in the absence of documentation demonstrating

8 a higher actual cost, permit the percentage of the cost of

9 audits performed pursuant to this chapter charged to Fed10 eral awards, to exceed the ratio of total Federal awards ex11 pended by such non-Federal entity during the applicable

12 fiscal year or years, to such non-Federal entity’s total ex13 penditures during such fiscal year or years.

14 ‘‘(c) Such guidance shall include such provisions as

15 may be necessary to ensure that small business concerns and

16 business concerns owned and controlled by socially and eco17 nomically disadvantaged individuals will have the oppor18 tunity to participate in the performance of contracts

19 awarded to fulfill the audit requirements of this chapter.

20 ‘‘§ 7506. Monitoring responsibilities of the Comptroller

21 General

22 ‘‘(a) The Comptroller General shall review provisions

23 requiring financial audits of non-Federal entities that re24 ceive Federal awards that are contained in bills and resolu-
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1 tions reported by the committees of the Senate and the

2 House of Representatives.

3 ‘‘(b) If the Comptroller General determines that a bill

4 or resolution contains provisions that are inconsistent with

5 the requirements of this chapter, the Comptroller General

6 shall, at the earliest practicable date, notify in writing—

7 ‘‘(1) the committee that reported such bill or res8 olution; and

9 ‘‘(2)(A) the Committee on Governmental Affairs

10 of the Senate (in the case of a bill or resolution re11 ported by a committee of the Senate); or

12 ‘‘(B) the Committee on Government Reform and

13 Oversight of the House of Representatives (in the case

14 of a bill or resolution reported by a committee of the

15 House of Representatives).

16 ‘‘§ 7507. Effective date

17 ‘‘This chapter shall apply to any non-Federal entity

18 with respect to any of its fiscal years which begin after June

19 30, 1996.’’.

20 SEC. 3. TRANSITIONAL APPLICATION.

21 Subject to section 7507 of title 31, United States Code

22 (as amended by section 2 of this Act), the provisions of

23 chapter 75 of such title (before amendment by section 2 of

24 this Act) shall continue to apply to any State or local gov-
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1 ernment with respect to any of its fiscal years beginning

2 before July 1, 1996.