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

Letter

Background

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.

Objectives, Scope, and Methodology

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.

Agencies’ Efforts to Ensure That Single Audit Findings are Corrected

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.

Guidance Existed for Obtaining Single Audit Reports and Distributing Reports to Appropriate Officials

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.

Receipt and Distribution of Single Audit Findings - Education

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.

Receipt and Distribution of Single Audit Findings - HUD

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.

Receipt and Distribution of Single Audit Findings - Transportation

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.

Written Management Decisions Generally Not Prepared

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.

Management Decisions - Education

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.

Management Decisions - HUD

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.

Management Decisions - Transportation

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.

Follow Up Needed to Ensure Completion of Corrective Actions

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.

Corrective Action Follow Up - Education

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.

Corrective Action Follow Up - HUD

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.

Corrective Action Follow Up - Transportation

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.

Single Audit Results are Not Communicated to Agency Management

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Comments From the Department of Education

Comments From the Department of Housing and Urban Development

Comments From the Department of Transportation

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