Single Audit: Actions Needed to Ensure That Findings Are Corrected
Published: 2002-06-26T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: In examining the efforts of the Departments of Education, Housing and Urban Development, and Transportation to ensure that recipients corrected single audit report findings, GAO found that each agency had procedures for obtaining and distributing the audit reports to appropriate officials for action. However, they often did not issue the required written management decisions or have documentary evidence of their evaluations of and conclusions on recipients' actions to correct the audit findings. In addition, program managers did not summarize and communicate information on single audit results and recipient actions to correct audit findings to agency management.

section_title: Letter
paragraphs: The Single Audit Act, as amended (Single Audit Act), is intended to  promote sound financial management, including effective internal control  over federal awards administered by state and local governments and  nonprofit organizations.  According to Office of Management and Budget  (OMB) figures, these awards amounted to about $325 billion in fiscal year  2001.  The audits required by the Single Audit Act are a critical element in  the federal government’s ability to ensure that federal funds are properly  used.  Each year, about 30,000 single audits are conducted with several  thousand identifying weaknesses in award recipients’ financial  management and internal control systems.  The federal government must  take timely and effective action to ensure that these weaknesses are  corrected, not only to help ensure effective program operations but also to  help minimize improper payments -- payments of federal funds that should  not have been made or that were made for incorrect amounts.
Given the important role of single audits as an oversight and monitoring  tool and the critical need to address audit findings, you requested  information on how federal agencies use single audits and what agencies  are doing to ensure that recipients of federal awards have corrected  problems identified by these audits.  On February 19, 2002, we briefed you  on the results of our survey on how the 24 agencies subject to the Chief  Financial Officers Act indicate that they use single audit results and  subsequently summarized those results in a report.  This follow-up report  focuses on what program managers for six large programs, two each at the  departments of Education (Education), Housing and Urban Development  (HUD), and Transportation (Transportation), do to (1) ensure that federal  award recipients correct the current year and recurring findings identified  in single audit reports and (2) summarize and communicate single audit  results and recipient actions to correct audit findings to agency  management for its use in evaluating agency oversight and monitoring of  recipient performance and in identifying programwide and recipient- specific problem areas needing management attention.
subsections: section_title: Background
paragraphs: The Single Audit Act is intended to, among other things,      promote sound financial management, including effective internal  controls, with respect to federal awards administered by nonfederal  entities;   promote the efficient and effective use of audit resources; and   ensure that federal departments and agencies, to the maximum extent  practicable, rely upon and use single audit work.
The Single Audit Act requires state and local governments and nonprofit  organizations that expend $300,000 or more in federal awards in a fiscal  year to have either a single audit or program-specific audit conducted.
Federal awards include grants, loans, loan guarantees, property,  cooperative agreements, interest subsidies, insurance, food commodities,  and direct appropriations and federal cost reimbursement contracts.
The Single Audit Act also requires recipients to forward an audit reporting  package to the FAC for archival purposes and for distribution to each  federal agency responsible for programs for which the audit report  identifies a finding.  The reporting package includes (1) the recipient’s  financial statements and schedule of expenditures of federal awards, (2) a  summary schedule of prior audit findings, including the status of all audit  findings included in the prior audit’s schedule of findings and questioned  costs for federal awards, (3) the auditor’s opinion on the recipient’s  financial statements and schedule of expenditures of federal awards,  reports on internal control and compliance with laws, regulations, and  provisions of contracts or grant agreements, and (4) a schedule of findings  and questioned costs.
Single audits are a key control for the oversight and monitoring of recipient  use of federal awards.  Federal agency actions to ensure that award  recipients address audit findings contained in single audit reports are a  critical element in the federal government’s ability to efficiently and  effectively administer federal awards.  These findings can include internal  control weaknesses; material noncompliance with the provisions of laws,  regulations, or grant agreements; and fraud affecting a federal award.
The President’s Management Agenda, Fiscal Year 2002, identifies the  need to reduce improper payments as a significant element of the  Administration’s initiative to improve financial performance throughout the  government.  Single audits can have an impact on the government’s efforts  to address improper payments since many of the programs experiencing  improper payments are audited as part of the over 30,000 single audits  conducted annually.  For example, recent estimates by the departments of  Agriculture and HUD identified about $976 million and $2 billion in  improper payments in food stamps and housing subsidy programs,  respectively.  These programs are often audited as part of a single audit.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine what program managers for six large  programs, two each at Education, HUD, and Transportation, do to (1)  ensure that federal award recipients correct the current year and recurring  findings identified in single audit reports and (2) summarize and  communicate single audit results and actions taken to correct audit  findings to agency management for its use in evaluating agency oversight  and monitoring of recipient performance and in identifying programwide  and recipient-specific problem areas needing management attention.  We  selected these agencies because they are three of the four federal agencies  that provide the largest amount of federal awards to state and local  governments and nonprofit organizations.  OMB documents show that, in  fiscal year 2001, these agencies made grants totaling $84 billion to state and  local governments.  We did not include the Department of Health and  Human Services, the agency with the largest amount of federal awards, in  this review because of our current work to evaluate the Centers for  Medicare and Medicaid Services’ (CMS) efforts to monitor its financial  oversight to help ensure the propriety of Medicaid expenditures.  That  work included the review of single audit reports for fiscal year 1999 and  found that the correction of audit findings and monitoring of CMS and its  regional offices were limited and audit resolution activities were  inconsistently performed across regions.
To assess how program managers ensure that federal award recipients  corrected problems discussed in single audit reports, we reviewed the  Single Audit Act, OMB Circular A-133, Audits of States, Local  Governments, and Non-Profit Organizations, and the Comptroller  General’s Standards for Internal Control in the Federal Government to  identify agency responsibilities for correcting single audit findings.  This  review identified the following three areas of responsibility, which  represent the criteria we used in making our assessment.
Obtain single audit reports and distribute them to agency officials  responsible for reviewing the report findings and taking actions on  those findings.
Issue written management decisions on audit findings within 6 months  of the receipt of the audit report to notify recipients of actions the  federal agency considers necessary to correct the audit findings.
Follow up with award recipients to ensure that corrective actions  occurred.
The FAC 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.  We  did not independently test the reliability of the database.  However, at  OMB’s request, the Office of the Inspector General (OIG) at the Department  of Commerce reviewed the database to assist OMB, the Census Bureau,  and other users in assessing the accuracy of the fiscal year 1998 audit  report information in the database.  We reviewed the OIG’s sampling  methodology, monitored the audit scope and the progress of the review,  and discussed the results with OMB and OIG officials.  We concluded that  the database for calendar year 1999 was reliable and adequate for our  sampling purposes.
At each agency, we identified two large award programs and queried the  FAC single audit database for calendar year 1999 single audit reports to  determine the 10 grantees receiving the largest amount of funding for each  program.  The programs identified for review were Title I and Pell Grants  at Education, the Community Development Block Grant (CDBG)  entitlement and Section 8 Tenant-Based (Section 8) programs at HUD, and  Capital Investment and Formula Grants (CIFG) and Highway Planning and Construction Grants (HPCG) at Transportation.  For each grantee  identified above, we queried the FAC single audit database to identify audit  findings in the programs selected.  The query identified 246 audit findings.
We interviewed agency officials and reviewed agency guidance to  determine their procedures for ensuring that audit findings are  communicated to appropriate officials and/or offices for action and  assessment of recipients’ corrective actions.  We also provided each agency  with a list of the audit reports and findings selected for review.  For each  finding, we requested documentation including written management  decisions and evidence of agency follow up with recipients on the  corrective actions taken and the appropriateness of those actions.  We  interviewed agency officials and reviewed the management decisions and  documentation provided on agency follow up on recipient corrective  actions.
Reporting single audit results and recipient actions to correct audit findings  to agency management provides management with valuable information  for use in assessing program risks and identifying areas needing action.  To  determine whether and how the three selected agencies summarized and  communicated the single audit results and actions to correct audit findings  to agency management, we interviewed officials at the three agencies to  determine the reports generated to inform agency officials of the single  audit results.
We conducted our review from October 2001 through March 2002 in  accordance with generally accepted government auditing standards.
section_title: Agencies’ Efforts to Ensure That Single Audit Findings are Corrected
paragraphs: Education, HUD, and Transportation had procedures in place that  established responsibility for obtaining, distributing, and reviewing single  audit findings and for communicating that information to appropriate  officials for action.  However, although required by OMB Circular A-133,  agencies often did not issue written management decisions or have  documentary evidence of their evaluations of and conclusions on recipient  actions to correct the audit findings.
subsections: section_title: Guidance Existed for Obtaining Single Audit Reports and Distributing Reports to Appropriate Officials
paragraphs: If federal agencies are going to take action on single audit findings, they  must first obtain the single audit reports or other documentation  containing single audit findings relating to their programs and distribute  this information to appropriate offices for action.  The three agencies in our  review had procedures for obtaining single audit reports and for  distributing audit finding information to appropriate agency offices.
subsections: section_title: Receipt and Distribution of Single Audit Findings - Education
paragraphs: At Education, different offices receive and distribute single audit reports or  audit findings.  For example, the Office of the Chief Financial Officer’s  (OCFO) audit resolution coordinator receives copies of single audit reports  with Title I program findings from the FAC and distributes audit finding  information to the Office of Elementary and Secondary Education (OESE).   OESE is responsible for the overall administration of the Title I program  and resolving the audit findings and following up on corrective actions.   The Office of Student Financial Assistance (OSFA) administers the Pell  Grant program.  OSFA receives copies of the single audit reports with Pell  Grant findings directly from the FAC and distributes copies of the reports  to the appropriate Pell Grant program offices for action.
section_title: Receipt and Distribution of Single Audit Findings - HUD
paragraphs: Although the FAC provides copies of single audit reports containing HUD  program audit findings to the OCFO, officials responsible for the CDBG  and Section 8 programs stated that their offices did not use those reports to  identify single audit reports with findings.  Rather, they obtained copies of  single audit reports and/or audit finding information relating to their  programs from other sources, including the award recipients and a HUD  database developed by its Real Estate Assessment Center (REAC).  OCFO  officials noted that the office considers these procedures more efficient  than having OCFO personnel review each single audit report, identify audit  findings, and distribute those findings to the appropriate HUD offices.
To identify CDBG findings, the Office of Community Planning and  Development (CPD) tasks its 42 field offices with identifying award  recipients whose single audit reports contained CDBG-related audit  findings.  An August 2000 CPD memorandum instructed field offices to  query the FAC single audit database to identify single audit reports  containing audit findings related to the CDBG program and to obtain copies  of these single audit reports directly from the federal award recipients.  To  perform this task, the field offices use award documents and other agency  reports to identify award recipients for which they have oversight  responsibility.  They then query the FAC single audit database to identify  those recipients whose single audit reports contain findings and obtain  copies of those reports directly from the recipients.
For the Office of Public and Indian Housing (PIH), program managers  located in 43 PIH field offices generally obtain audit finding information for  the Section 8 program from HUD’s REAC database.  Recipients  electronically submit financial and compliance information, which is  excerpted from single audit reports, directly into the REAC system for  REAC analysis.  According to HUD officials, this database contains  information including the financial statements, notes to the financial  statements, the schedule of expenditures of federal awards, the type of  audit opinion, an identification of audit findings, and recipient corrective  action plans.  Findings that are in noncompliance with HUD regulations  and agreements are referred to the HUD Departmental Enforcement Center  for processing and follow up.  PIH officials stated that the REAC database  covers about 75 percent of the Section 8 program recipients and that  program managers responsible for overseeing federal award recipients not  covered by REAC could query the FAC single audit database to identify  other single audit reports with findings.  Once program managers identify  reports with findings, they obtain copies of the single audit reports directly  from the recipients.  PIH is in the process of developing single audit  guidance that it plans to issue during the summer of 2002.
section_title: Receipt and Distribution of Single Audit Findings - Transportation
paragraphs: The OIG receives single audit reports from the FAC and decides which  single audit findings should be formally addressed by the Operating  Administrations based on a number of factors.  These factors include the  dollar amount of expenditures, the number of federal award findings  identified by the auditor, and the type of finding identified.  Based on its  decisions, the OIG sends “action” memoranda to the program field offices  informing them of the single audit findings that require action and a  response to the OIG.  The OIG uses “informational” memoranda to inform  the program field offices of single audit findings for which the OIG does not  require a formal response.   Although the OIG does not require a formal  response on the “informational” memoranda, agency officials stated that  they expect the field offices to ensure that recipients correct all findings,  irrespective of the type of memorandum used to communicate the findings.   An agency official noted that they developed this method of addressing  audit report findings because they consider many findings insignificant and  follow up by OIG officials is not an effective use of resources.
section_title: Written Management Decisions Generally Not Prepared
paragraphs: Our review found that the audit files at the three agencies contained  written management decisions for 75 (about 30 percent) of the 246  findings.  OMB Circular A-133 requires federal agencies to issue written  management decisions on the audit findings contained in single audit  reports within 6 months of receiving the recipient’s single audit report.  The  management decisions should describe the corrective actions agencies  consider necessary based on their evaluation of the audit findings and  corrective action plans contained in the single audit reporting package.   Since federal agencies are responsible for ensuring that the recipients  implement adequate corrective action, it is important for management to  clearly communicate the agency’s expectations and time frames for action  through management decisions.
The issuance of a management decision is also critical because, based on  OMB Circular A-133, award recipients may consider an audit finding invalid  and not warranting further action if all the following have occurred:   a management decision was not issued,  2 years have passed since the audit report in which the finding occurred  was submitted to the FAC, and  the federal agency or pass-through entity is not currently following up  with the recipient on the audit finding.
As shown in table 1, the audit files reviewed contained documentation  evidencing management decisions for 75 of the 246 audit findings  contained in our sample audit reports.
Agency officials noted several possible reasons that management decisions  were not prepared and available for our review including   the findings were insignificant and did not require further action,    follow up with recipients was performed but not documented,   the audit report that identified the finding also indicated that the  recipient had corrected the audit finding as of the report issuance date,  and   subsequent audit reports were reviewed to determine if the finding had  been corrected.
The audit files generally did not contain an indication that agency officials  considered any of these four factors or used them as a justification for not  preparing the required management decisions.  Since it is the federal  agency’s responsibility to ensure that corrective action implemented by the  recipient will correct a finding, the agency should be on record as agreeing  with the recipient’s planned or completed corrective actions or pointing out  other actions needed to correct the findings.  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 subsequent-year 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.
The following section provides more detailed information on the results of  our review of management decisions.
subsections: section_title: Management Decisions - Education
paragraphs: Our review of the audit files for the 113 Title I and Pell Grant audit findings  at Education revealed that 66 of the findings had documented management  decisions.  Of the 47 with no written management decisions, 25 were in the  Cooperative Audit Resolution and Oversight Initiative (CAROI) process,  which is discussed in more detail below.
When either the OESE or Pell Grant program offices receive single audit  findings, special teams assess the seriousness of the audit findings to  determine the amount of attention needed for resolution.  According to  draft Education guidance, Post Audit User Guide, which has been in effect  since 1987 and has been periodically updated, the purpose of this  assessment process is to promote the most efficient use of external audits  to assist management in achieving program goals and discharging its  fiduciary responsibilities.  The teams evaluate the audit findings based on  criteria established in the draft guidance, which states that audit findings  may be addressed using three approaches -- full resolution, abbreviated  resolution, or technical assistance.  The principle criteria used in evaluating  each finding and determining the resolution approach is the seriousness of  the finding, that is, the monetary or program compliance issues identified  or the recurring nature of the finding.  Full and abbreviated resolution  approaches require written notification to the recipient.  The guidance  states that resolution by technical assistance does not require a written  management decision.  However, it does require that all communication  with the auditee in the resolution of an audit finding using the technical  assistance approach be documented and available in the audit file.
Education has also developed a process to facilitate management decisions  on complex audit issues affecting multiple programs.  This process, CAROI,  uses a collaborative approach to resolve audit findings and their underlying  causes.  During the CAROI process, representatives from Education’s  program and OIG offices work collaboratively with state and local program  managers to address complex audit findings affecting multiple programs.   An agency official noted that the process may not be completed in the 6- month management decision time frame set forth in OMB Circular A-133.   For those findings in our sample being addressed using the CAROI process,  the 6-month requirement was not met.  It should be noted, however, that an  Education report stated that CAROI projects have had a positive impact in  reducing recurring findings identified in statewide audits.
Of the 25 single audit findings with no management decisions that are in the  CAROI process, 22 relate to one recipient.  Education officials told us that  they are working with other federal agencies, including the Department of  Justice, on fraud and other program-related issues involving this recipient.
Regarding the remaining 22 findings with no written management  decisions, officials stated that, depending upon the approach the review  team determined appropriate for the audit finding, program staff may have  followed up with recipients but not prepared a management decision.  They  noted that, although no record of these discussions was in the audit files,  this could have been the case for at least some of the 22 audit findings.
OMB Circular A-133 requires that management decisions clearly state  whether or not the federal agency sustains the audit finding, the reasons for  the decision, the expected corrective action, and that they describe any  appeal process available to the recipient.  Further, the Circular requires  that, if the recipient has not completed corrective action as of the  management decision date, the decision should give a timetable for this  action.  For the 66 findings with written management decisions, our review  showed that the management decisions often did not contain all of the  elements required by OMB Circular A-133.  For example, 5 of the Title I  management decisions and 25 Pell Grant management decisions did not  include a timetable for follow up on the implementation of corrective  action.  Further, 3 of the Pell Grant findings did not include expected action  to correct the findings.
section_title: Management Decisions - HUD
paragraphs: HUD files contained only five written management decisions for the 85  CDBG and Section 8 program audit findings we reviewed.  The audit files  contained three written management decisions for the 37 CDBG audit  findings.  Fifteen of these findings were first-time findings and 22 were  recurring findings.  Of the recurring findings, 16 related to one recipient.   Further, only two of the 48 Section 8 findings had written management  decisions.  Of these findings, 16 were first-time findings and 32 were  recurring findings.  Eighteen of the recurring findings were for one  recipient.  This recipient has been identified as having multiple internal  control issues related to HUD and other federal agencies that require  coordination with the OIG and other federal agencies.   HUD officials  stated that they were continuing to work with the recipient to resolve these  issues.
Officials from both the Offices of Community Planning and Development  and Public and Indian Housing noted that one possible reason for the lack  of a written management decision was that program personnel reviewed  the subsequent year’s single audit reports and determined that no further  action was necessary based on the status of corrective actions as cited in  the report.  Our review of the calendar year 2000 audit reports indicated  that 27 (13 CDBG and 14 Section 8) of the 85 findings in our sample had  been corrected.  Therefore, this possibility did not account for most of the  instances of missing management decisions.  Further, as noted earlier,  agencies generally receive subsequent single audit reports well after the 6- month time frame within which management decisions are required.  So, at  a minimum, the agency did not comply with OMB Circular A-133 timing  requirements for the issuance of management decisions.
Like Education, HUD’s management decisions did not include all OMB  Circular A-133-required information.  For example, two of the three CDBG  program management decisions did not include a timetable for follow up.
In response to our work, HUD’s Office of Community Planning and  Development issued Field Guidance on Single Audit Act Requirements  (CPD Field Guidance) on March 13, 2002.  This guidance contains  requirements outlined in OMB Circular A-133, including the requirements  that management decisions clearly state whether or not the audit finding is  sustained, the reasons for the decision, and the expected grantee action.  If  the recipient has not completed corrective action, the guidance requires  that the field offices establish a timetable for follow up.  Finally, the  guidance requires that management decisions describe the appeal process  available to the recipient.  In issuing this guidance, CPD referred to our  review as showing that more detailed guidance was needed to help ensure  that CPD properly carries out its oversight responsibilities.  This guidance  is a positive step toward ensuring that management decisions are issued for  all audit findings related to the CDBG program.  According to PIH officials,  they plan to issue guidance covering the process for correcting audit  findings contained in single audit reports in the summer of 2002.
section_title: Management Decisions - Transportation
paragraphs: Transportation files contained only four written management decisions for  the 48 CIFG and HPCG audit findings we reviewed, all of which related to  the 17 CIFG findings.  Transportation guidance requires each Operating  Administration to establish a system to ensure prompt responses to audit  reports and implementation of audit recommendations.  The guidance  requires that the system provide for a complete record of actions taken on  audit recommendations.  Transportation assigns program managers in field  offices the responsibility for preparing management decisions and  following up on corrective action for those findings addressed in OIG  “action” memoranda.  Despite this guidance, we found few written  management decisions in the audit files reviewed.
The OIG issued “action” memoranda for 4 of the 17 CIFG findings.   Management decisions existed for 2 of these findings, 1 of which involved  questioned costs of over $300,000 and for which the single audit report  noted that corrective actions had been completed.  The other 2  management decisions involved audit findings for which the OIG had  issued “informational” memoranda.  Further, of the 31 HPCG findings, the  OIG issued two “action” memoranda that addressed 10 findings.  The audit  files did not contain written management decisions for these findings.
Our review of the management decisions to determine if they contained all  OMB Circular A-133-required elements revealed that none of the four  Transportation management decisions did so.  For example, they did not  contain information on the reason for the decision to sustain or not sustain  the audit finding or a description of the appeals process.
section_title: Follow Up Needed to Ensure Completion of Corrective Actions
paragraphs: Program officials at the three agencies told us that they follow up on the  implementation of corrective actions through site visits, telephone  conversations, and review of subsequent single audit reports.  Although the  audit files contained some information relating to corrective actions, we  found very little documentation identifying program or field office  evaluations of and conclusions on the adequacy of the corrective actions  taken by recipients.  OMB Circular A-133 requires agencies to provide the  recipient with a timetable for implementing corrective action and to ensure  that the award recipient takes appropriate and timely corrective actions.   The Comptroller General’s Standards for Internal Control in the Federal  Government states that agency efforts to monitor internal controls should  include policies and procedures for ensuring that the findings of audits and  other reviews are promptly resolved.  The lack of documentation makes it  difficult for management to ensure that program offices and award  recipients are meeting their audit finding-related responsibilities in an  appropriate and timely manner.
subsections: section_title: Corrective Action Follow Up - Education
paragraphs: Our review of the audit files for the 47 Title I and 66 Pell Grant audit  findings showed that 5 Title I and 25 Pell Grant files did not contain  documentation of follow-up actions.  Education’s program managers  responsible for the Title I and Pell Grant programs stated that they verify  that corrective action was implemented using site visits and subsequent  single audit reports.  Education’s draft guidance requires program officials  to maintain accurate records of all audit follow-up activities, including all  correspondence, documentation, and analysis of the documentation.   Based on our audit file review, we were unable to verify that the agency had  evaluated and concluded on the adequacy of the recipient’s corrective  actions.
section_title: Corrective Action Follow Up - HUD
paragraphs: Our review of 85 single audit findings for the CDBG and Section 8 programs  identified documentation of follow up for 28 of the findings.  For example,  the audit files contained evidence of a review of subsequent single audit  reports for 14 findings and of follow up with the recipient and  determination that the audit finding was resolved for 4 findings.
CPD and PIH officials advised us that program managers located in field  offices are tasked with following up with recipients on audit findings  contained in single audit reports.  They told us that these offices used  various procedures, including contacting the federal award recipients  concerning the audit findings and corrective actions and reviewing the  status of the audit findings in the subsequent single audit reports, to  determine if the audit findings were corrected.  If considered appropriate,  field offices might also conduct on-site monitoring visits at the award  recipients.  While field office staff may have actively followed up on  findings, our review of audit files provided by field office locations showed  evidence of follow up or monitoring for only 28 of the 85 findings.
The March 2002 CPD Field Guidance requires each field office to maintain  files that contain all audit-related communications with the CPD award  recipients, including any appropriate reports from the FAC, audit reports,  and, if applicable, the auditor’s management letter.  As noted above, PIH  officials stated that they also plan to issue guidance in the summer of 2002  covering the process for correcting audit findings contained in single  audits.
section_title: Corrective Action Follow Up - Transportation
paragraphs: Our review of documentation provided by Transportation for the 17 CIFG  and 31 HPCG audit findings revealed little evidence of follow-up activity in  the audit files.  Although these files contained some information relating to  corrective actions, they generally did not contain documentation  identifying agency evaluations of and conclusions on the adequacy of the  corrective actions taken by recipients.  Without documentation that  corrective action is appropriate, timely, and implemented, management  cannot be sure that program offices and award recipients are meeting their  audit finding-related responsibilities.
During discussions with field office program managers, we determined that  follow-up activities vary widely.  For example, personnel in one field office  told us that the office follows up with the recipient to ensure that  corrective action has been implemented and that follow up is tracked and  documented using an automated system.  Other field office program  managers told us that they review the subsequent year’s single audit report  to determine if the deficiency has been corrected and may verify that  corrective action has been implemented during site visits to the recipient.   However, the audit files reviewed did not contain evidence of agency  evaluations of or conclusions on the adequacy of recipient actions to  correct audit findings.
Audit follow-up guidance issued by the Office of the Secretary in 1989  requires each Operating Administration to establish a system to ensure  prompt responses to audit reports and the implementation of audit  recommendations and further states that the system must be capable of  reporting in a timely and uniform manner in order to meet information and  reporting requirements.  Transportation’s current guidance, which it issued  in March 2000, makes no mention of several OMB requirements included in  earlier agency guidance, including the contents of management decisions,  timely responses to audit reports and follow up procedures, and  maintaining records of follow-up actions.
section_title: Single Audit Results are Not Communicated to Agency Management
paragraphs: Based on discussions with officials at the three agencies, none of the  program offices with management decision preparation and corrective  action responsibilities reported single audit results or recipient actions to  correct single audit findings to agency management.  Although neither the  Single Audit Act nor OMB Circular A-133 requires this reporting, the  Comptroller General’s Standards for Internal Control in the Federal  Government note that agency officials, program managers, and others  responsible for managing and controlling program operations need  relevant, reliable, and timely information to make operating decisions,  monitor performance, and allocate resources.
Discussions with officials at each of the three agencies revealed that, even  when program or other offices have information on single audit results and  recipient actions to correct single audit findings, this information is not  communicated to agency management for review, analysis, and possible  action.
Although officials at Education’s OCFO told us that their audit  resolution tracking system was capable of reporting on the status of  single audit findings, no reporting to Education management occurred.
According to an OCFO official at HUD, the various program offices  within HUD do not prepare reports on the status of audit findings  contained in single audit reports.
At Transportation, the OIG reports unresolved and incompletely  corrected single audit findings in its semi-annual report to the Congress.   However, the report does not include information on all single audit  findings, since the OIG only tracks findings for which it issues “action”  memoranda, and the report contains only general information and no  specific details on the nature and extent of single audit findings.
Information for such management reporting can come from many sources  including agency analyses of single audit findings and agency databases,  such as HUD’s REAC database.  Another valuable source of information is  the FAC single audit database.  This database consists of information  obtained from a data collection form that recipients send to the FAC as part  of their single audit reporting package.  It contains summary information  on the auditor, the recipient and its federal programs, and audit results.   The database contains about 4 years of information on over 30,000 annual  single audit reports.  The various data query options available provide  potential users, including program managers, auditors, and other interested  parties, with significant amounts of readily available information on grant  recipient financial management and internal control systems and on  compliance with federal laws and regulations.
To determine the types and frequency of audit findings at the six programs  in the three agencies included in our review, we queried the FAC single  audit database and reviewed the sample single audit reports to determine if  the grantees in our selection had similar types of audit findings.  Our query  showed that similar audit findings were reported for grantees in each of the  programs.  For example, 33 of the 66 audit findings we reviewed for the Pell  Grant program were attributable to grantees’ noncompliance with special  tests and provisions applicable to the program.  These findings typically  involved situations where colleges or universities were unable to provide  documentation to show that students receiving federal aid attended class.   For Title I programs, 11 of the 47 audit findings reviewed were attributable  to grantees’ noncompliance with allowable costs provisions specified in the  grant.  Further, our query showed 16 of the 37 audit findings for recipients  of HUD’s CDBG program were attributable to noncompliance with the  grants reporting requirements, and 18 of the 48 HUD Section 8 program  audit findings were attributable to grantees’ noncompliance with the  special test and provisions requirements of the Section 8 grants.
We also queried the FAC single audit database to determine if any of the  programs selected for review had recurring types of audit findings.  We  found several instances in which single audit reports contained types of  audit findings that were repeated in 3 or more consecutive years.  For  example, 4 of the 10 Education Pell Grant recipient reports identified  eligibility findings that repeated in 3 or more consecutive years.  For the  Title I program, 4 grantees had subrecipient monitoring findings that  repeated in 3 or more consecutive years.  At HUD, a review of the database  and single audit reports showed that 15 of the 37 CDBG audit findings were  not corrected over a period of 3 successive years.  Twelve of these 15  recurring audit findings occurred at one recipient.  The remaining 3  recurring audit findings occurred at three other recipients.  In addition,  CDBG and Section 8 grants also had recipients with audit findings  attributable to reporting, allowable costs, and eligibility that were repeated  in 3 or more subsequent years.  Transportation recipients selected for  review had cash management, subrecipient monitoring, allowable costs,  and equipment and real property management findings that were repeated  in 3 or more years at individual recipients.
This type of information could be a valuable tool in improving grants  management by helping management evaluate agency oversight and  monitoring activities and identify problem areas.  It could also assist in  setting priorities for actions needed to correct program problems.  In  addition, it can provide agencies with information needed to help them  accomplish their responsibilities as established by The President’s  Management Agenda, Fiscal Year 2002, initiative to reduce improper  payments in federal programs.
section_title: Conclusions
paragraphs: The first step in an agency’s efforts to address single audit findings is  obtaining single audit reports and distributing them to agency officials  responsible for reviewing the report findings and taking actions on those  findings.  Each of the three agencies in our review had procedures for  communicating audit reports and/or audit finding information to program  or field offices for action.
OMB Circular A-133 requires agencies to prepare written management  decisions on audit findings contained in single audit reports.  Our review of  the audit files at the three agencies found that they issued written  management decisions for only 75 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 (1) the  audit findings were considered insignificant or not serious, (2) follow up  with recipients was performed but not documented, (3) the single audit  report stated that the recipient had corrected the finding prior to the  report’s issuance, and (4) the subsequent year’s single audit report  indicated that the recipient had corrected the finding.  In our view, none of  these reasons justify the nonissuance of a management decision.  Further,  the audit files generally did not contain any evidence that agency officials  considered these factors or otherwise considered the preparation of  management decisions.
Education, HUD, and Transportation do not adequately document their  evaluations of and conclusions on the corrective actions taken by  recipients to correct single audit findings.  While the audit files contained  copies of recipient documents and other records, they generally did not  contain agency evaluations of or conclusions on the adequacy of the  recipient actions cited in those records.  This documentation is critical  because each agency relies heavily on program, regional, or field offices to  ensure that corrective actions occur and none requires reporting on the  corrective action status on all findings contained in single audit reports.   Therefore, requiring documentation can help ensure that these offices  perform their responsibilities in ensuring that recipients take all necessary  corrective actions.
Through discussions with agency officials, we determined that none of the  agencies report single audit results or the status of single audit findings and  implementation of action to correct deficiencies to agency management.   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, because  many federal programs that are subject to single audits also experience  improper payments, this reporting can be useful to agency management in  addressing the requirements established in The President’s Management  Agenda, Fiscal Year 2002, for reducing such payments.
section_title: Recommendations for Executive Action
paragraphs: To ensure that recipients correct the weaknesses identified in single audit  reports, we recommend that the Secretary for the departments of  Education, HUD, and Transportation ensure that each has established and  follows guidance that addresses the OMB Circular A-133 requirements for  all agency programs whose awards are subject to the Single Audit Act.  This  guidance should clearly define the roles and responsibilities of each agency  unit in ensuring appropriate and timely actions on single audit findings  including:  preparing and issuing 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,  performing follow up procedures to ensure that the recipient  implemented adequate corrective action, and  documenting results of evaluations of and conclusions on recipients’  actions to correct audit findings.
We also recommend that the Secretary of each of the three agencies  implement policies and procedures for reporting information to agency  management on (1) the types and causes of findings identified in single  audit reports and (2) the status of corrective actions.
section_title: Agency Comments and Our Evaluation
paragraphs: Education agreed with the thrust of the report’s findings and  recommendations.  Its comments (reprinted in appendix I) noted that it is  important to ensure that recipients correct the weaknesses identified in  single audit reports and that the department takes the necessary steps to  ensure the implementation of single audit guidance as required under OMB  Circular A-133.  An attachment to the comments, which is not reprinted,  provided several clarification points and suggested additions to the report,  which we considered and included in the report, as appropriate.
HUD agreed with the report’s findings and recommendations.  Its  comments (reprinted in appendix II) described actions that HUD is taking  to improve its oversight and use of single audits to strengthen its program  compliance and performance.  They also contained several minor technical  or editorial revisions that we considered and included in the report, as  appropriate.
The Department of Transportation’s comments (reprinted in appendix III)  raised several issues about the scope of our audit work, the conclusions  reached, and the recommendations made.
Transportation questioned our audit scope and suggested that we  should have conducted independent field testing to determine the  extent and effectiveness of recipient actions taken.  Our objective was  to determine what agencies do to ensure that recipients take timely and  appropriate action; not to independently reperform the steps that  program and other offices, as applicable, would need to do to evaluate  recipient corrective actions.  To accomplish our objective, we examined  agency audit files to determine the extent to which those files contained  evidence of agency actions to ensure that recipients had taken  appropriate and timely corrective actions on all audit findings.  As we  noted in the report, the audit files generally did not contain evidence of  these actions either through written management decisions or through  documentary evidence of agency evaluations of or conclusions on  recipient corrective actions.
Transportation noted that not all single audit findings are useful or  meaningful and that our report did not recognize this point.  Two points  are relevant here.  First, the Comptroller General’s Government  Auditing Standards, which auditors performing single audits are  required to follow, requires auditors to “report the significant audit  findings developed in response to each audit objective.”  The standards  also note that audit findings not reported, because of their  insignificance, should be separately communicated to the auditee.  The  auditors included all of the findings discussed in our report in their  single audit reports.  Our objective was not to evaluate the usefulness of  audit findings or whether auditors made the right determination as to  significance in including the 48 findings in the reports covered by our  review.  Regarding the second point, the “Management Decisions –  Transportation” section of the report that we provided for comment  identified management decision information for findings addressed by  both “action” and “informational” memoranda.  In using these different  memoranda, Transportation distinguished between serious or  significant and other types of findings.  We did not separately judge or  evaluate the decision to use one or the other type of memoranda.   However, OMB Circular A-133 does not distinguish between the serious  or other types of audit findings.  It clearly states that actions are  required on all audit findings.
Transportation’s comments also discussed the agency’s process for  reviewing and tracking audit findings.  They noted that the agency  tracks significant findings in the joint OIG/management tracking system  until documentation is provided that action has been completed and  stated that less significant actions are tracked locally.  The draft report  we provided for comment generally contained this same information  and discussed the types of memoranda the agency used to communicate  single audit findings to appropriate agency offices.  We do not take issue  with the agency’s process.  However, as our report states, our review of  audit files, irregardless of whether the agency handled the audit findings  with “action” or “informational” memoranda, found that the files  generally did not contain documentation identifying agency evaluations  of and conclusions on the adequacy of the corrective actions taken by  recipients.
Transportation stated that our report recommends that each department  create a new system or systems for communicating audit findings to top  management.  While our report recommends reporting to top  management, it also notes that information for such reporting can come  from such sources as agency analyses of single audit findings, agency  databases, and the FAC single audit database.  We do not recommend or  suggest that agencies develop new systems.  Agencies such as  Transportation, that uses a joint OIG/management tracking system for  significant findings, should use information obtained from that or other  existing systems to summarize single audit results and the status of  recipient corrective actions and communicate that information to top  management.
The final agency comment notes that documentation concerns alone are  insufficient to demonstrate that agencies are ineffective at ensuring that  grantees achieve the changes recommended by single audits to safeguard  federal funds.  Our report does not make the point that agencies are  ineffective if they do not maintain appropriate documentation.  Clearly,  recipients can take timely and appropriate action to correct audit findings  without regard to federal agency documentation that such action occurred.   However, absent documentation that timely and appropriate actions  occurred, agency management would have no basis for concluding that  agency follow-up with recipients occurred or that recipient corrective  actions, if any, were timely and appropriate.
We are sending copies of this report to the Ranking Minority Member,  Subcommittee on Government Efficiency, Financial Management and  Intergovernmental Relations, House Committee on Government Reform;  the Chairman and Ranking Minority Member, Senate Committee on  Appropriations; the Chairman and Ranking Minority Member, House  Committee on Appropriations; the Chairman and Ranking Minority  Member, Senate Committee on Governmental Affairs; the Chairman and  Ranking Minority Member, House Committee on Government Reform; the  Chairman and Ranking Minority Member, Senate Budget Committee; and  the Chairman and Ranking Minority Member, House Budget Committee.   We are also sending copies to the Director of the Office of Management and  Budget and agency CFOs and IGs.  Copies of this report will be made  available to others upon request.  This report will also be available on  GAO’s home page (http://www.gao.gov).
Please call me at (213) 830-1065 or Tom Broderick, Assistant Director, at  (202) 512-8705 if you or your staff have any questions about the information  in this report.  Key contributors to this report were Marian Cebula, Cary  Chappell, Mary Ellen Chervenic, Perry Datwyler, Taya Tasse, and Jack  Warner.
section_title: Comments From the Department of Education
section_title: Comments From the Department of Housing and Urban Development
section_title: Comments From the Department of Transportation
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