Office of Management and Budget Proposed Circular A-133 Changes
In February 2012, the Office of Management and Budget (OMB) issued a public notice of proposed changes to the current Circular A-133. The proposal is comprised of three reforms, which include changes to audit requirements, cost principles and administrative requirements. The OMB indicated the purpose of the proposal is to reduce administrative burden, focus more resources on higher-dollar and higher-risk areas, and adopt a risk-based approach for single audits. There is no indication of when the proposed changes would be put into effect.
The audit requirement as described by the proposed OMB Circular A-133 would change the monetary threshold floor requiring a single audit into several categories. Organizations that spend less than $1 million in federal funds during their fiscal year would not be required to have a single audit. (The current threshold floor requiring a single audit is $500,000.) Organizations that expend between $1 million and $3 million in federal awards during a fiscal year would be required to have a focused version of the single audit. The focused version would include testing of two compliance requirements for the organization’s major program(s). One mandatory compliance requirement would be testing of allowable and unallowable costs. The second compliance requirement would be chosen at the discretion of the funding agency based on where they felt risk of waste, fraud and abuse would occur. A full single audit would be required for organizations that expend more than $3 million in federal funds during their fiscal year.
There are two areas of recommended change for cost principles. The first is consolidation of the cost principles. The consolidated cost principles would have slight variations depending of the type of organization. The other recommendation would be basing the indirect cost calculation on flat rates.
Possible change to the administrative requirements of OMB Circulars A-102, A-110 and A-89 would include creating a uniform set of administrative requirements and require pre-award consideration of the merit and financial risk of the organization. The uniform administrative requirements would combine OMB Circulars A-102 and A-110 and there would be slight variances depending on the type of organization. Pre-award considerations would base risk from the following factors: financial, internal controls and programmatic performance, previous single audit reports and findings from previous awards.
There are approximately 40,000 single audits completed annually. These changes, if enacted, would decrease the number of organizations requiring a single audit. It is estimated that 11,000 organizations will have no formal surveillance or supervision by federal agencies and pass-through entities. As federal agencies and pass-through entities have restructured over the last several years oversight and monitoring has decreased. Single audits are a key part in oversight and monitoring of grantees and sub-recipients. Single audits provide the users of the financial statements, including federal funders, assurance related to financial integrity and incidents of noncompliance, and lower the risk of future noncompliance.