single audit fundamentals part 2: the mysteries of major ......if state law permits but does not...

Single Audit Fundamentals Part 2:

The Mysteries of Major Program

DeterminationA Governmental Audit Quality Center Web Event

Governmental Audit Quality Center

Today’s speakers

John Good,CPA,

Ernst & Young LLP

George Strudgeon,

CPA,Virginia

Auditor of Public

Accounts2

Single Audit Fundamentals – A Four Part SeriesPart 1, What is a Single Audit? A Basic Background and OverviewPart 2, The Mysteries of Major Program DeterminationPart 3, Understanding and Testing Compliance Requirements and Internal Control over CompliancePart 4, Overview of Sampling and Single Audit Reporting

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Part 2 - what we will cover today

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Considerations prior to major program determination

Applying the risk-based approach for determining major programs under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR 200 (UG or Uniform Guidance)

Communications with cognizant or oversight agency for audit

http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl

Terminology and abbreviations

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CFDA Catalog of Federal Domestic Assistance OMB Office of Management and Budget

FAC Federal Audit Clearinghouse PTE Pass-Through Entity

GAAP Generally Accepted Accounting PrinciplesR&D Research & Development

GAS-SA Guide

AICPA Audit Guide, Government Auditing Standards and Single Audits SEFA

Schedule of Expenditures of Federal Awards

NIH National Institutes of Health SFA Student Financial Assistance

NSF National Science Foundation UG Uniform Guidance

Considerations prior to major program determination

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Planning begins with….

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Satisfying the UG requirements

Establishing an understanding with the auditee

Additional requirements of the Single Audit Act• documentation (access)

• follow-up on prior year findings

Financial statement audit considerations

Planning also involves….

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Defining the entity to be audited

Determining the audit period

Timing of audit completion

Obtaining the SEFA

Relevant guidance

Subpart F (§200.5XX) of the UG

OMB Compliance Supplement• https://www.whitehouse.gov/omb/management/offic

e-federal-financial-management/

• Issued annually – use the APPLICABLE year’s Compliance Supplement

AICPA GAS-SA Guide

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https://www.whitehouse.gov/omb/management/office-federal-financial-management/

SEFA: The “footpath” to single audit performance

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SEFA serves as the foundation for major program determination – See Part 1 for required SEFA elements and disclosures)• SEFA accuracy and completeness are

critical to the auditor getting it right

Internal control over compliance• Auditor assesses the auditee’s controls over

the accuracy and completeness of the program information and expenditure amounts reported on the SEFA, including controls over the accuracy of the CFDA numbers

Compliance• Audit procedures should be performed to

obtain sufficient appropriate audit evidence supporting the accuracy and completeness of the SEFA, including the identification of federal programs in the schedule

A warning about noncash awards

Loans and loan guarantees, insurance, endowment funds, free rent, food commodities, donated property, donated surplus property

Reported on face of SEFA

It is important to identify noncash awards as they impact major program determination

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Looking at low-risk auditee criteria

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Must meet all of the following for each of the two preceding years:• Annual single audits, including timely filing with FAC

• Unmodified opinion(s) on financial statements in accordance with GAAP or basis of accounting required by state law

• Unmodified in-relation-to opinion on the SEFA

• No material weaknesses in internal control over financial reporting

§200.520

Looking at low-risk auditee criteria

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Must meet all of the following for each of the two preceding years:• No findings in type A programs in preceding 2 years

– material weaknesses in internal control over compliance

– modified opinion on a major program

– known or likely questioned costs > 5% of expenditures for a type A program

No auditor reporting of going concern

§200.520

Effect of basis of accounting on low-risk auditee determination

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If state law permits but does not require an auditee to prepare financial statements in accordance with a basis that is not GAAP (e.g., cash, regulatory), auditee cannot be considered low-risk auditee

If the non-GAAP basis of accounting is required by state law, auditee can be considered low-risk auditee

If auditee voluntarily prepares financial statements on a non-GAAP basis of accounting (e.g., cash or modified cash), auditee cannot be considered low-risk auditee

Applying the risk-based approach for determining major programs

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Major program determination and risk assessment

Risk-based approach to major program determination

Four-step approach considers:

• Current and prior audits

• Federal agency and/or PTE oversight

• Program risk

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Major program determination and risk assessment

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Four-step approach

Identify "type A" programs

Identify low-risk "type A"

programs

Identify high-risk "type B"

programs

Determine major

programs to audit

Step 1 Step 2 Step 3 Step 4

Step 1: Identify type A programs – 1st identify federal programs

All federal awards to a non-federal entity assigned the same CFDA number

If no CFDA number, all federal awards from the same federal agency made for the same purpose

Clusters

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§200.42

Step 1: Identify type A programs

What is a cluster?• "…a grouping of closely related programs that share common

compliance requirements."

What kinds of clusters are there?• R&D

• SFA

• Other clusters – defined by OMB in the Compliance Supplement or as designated by a state for federal awards the state provides to its subrecipients that meet the definition of a cluster

A cluster of programs must be considered as one program for determining major programs

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§200.17


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Part 5 of the Compliance Supplement lists each cluster and specific, unique requirements for each

R&D is the only cluster where specific CFDA numbers are not identified in Part 5

For R&D, auditees look to the definition of R&D and apply judgment to determine inclusion in the cluster

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Total federal awards expended Type A/B threshold≥$750,000 and ≤ $25 million $750,000

>$25 million but ≤ $100 milliontotal federal awards expended times .03

>$100 million but ≤ $ 1 billion $3 million

>$1 billion but ≤ $10 billiontotal federal awards expended times .003

>$10 billion but ≤ $20 billion $30 million

>$20 billiontotal federal awards

expended times .0015


Example:type A threshold = $750,000City of Dogwood federal programs:Program 1 - $795,000 – type AProgram 2 - $751,000 – type AProgram 3 – 1,785,000 – type AProgram 4 - $250,000 – type BProgram 5 - $10,000 – type BProgram 6 - $749,985 – type B

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Programs not labeled as type A are deemed to be type B programs

Impact of Large Loan and Loan Guarantees on type A/B ThresholdThe inclusion of “large” loan and loan guarantees should not result in the exclusion of other programs as type A programs• For purposes of type A/B threshold calculation, a federal

program is only considered a loan program if value of federal awards expended from loans within the program is 50% or more of the total federal awards expended for the program

• When a loan program exceeds four times the largest non-loan program it is considered a “large” loan program

• If a program is considered a large loan program, it is considered a type A program and excluded in determining other type A programs

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§200.518 (a)(3)

For this calculation, a cluster of programs is treated as one program!

Is this SFA Cluster considered a loan program for major program determination purposes?

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25

Yes – this cluster is a loan program. The loan programs circled are more than 50% of the total cluster.


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No – this cluster is not a loan program. The loan programs circled are less than 50% of the total cluster.

Effect of large loans on identification of type A programs

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Actions 1 through 3 – Determine if any of the programs identified as loan programs are “large loan programs”

• Action 1 - Determine the amount of the largest non-loan program (remember that clusters and programs with the same CFDA number are considered as one program)

• Action 2 – Determine the large loan programs. A loan program that exceeds 4 times the largest non-loan program is considered a “large loan program”

Effect of large loans on identification of type A programs

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Action 3 (re-perform Step 1) – Recalculate the type A threshold

• Remove the federal expenditure amounts for the large loan programs from the total federal expenditures

• Recalculate the type A threshold based on the total federal expenditures with the expenditure amounts for large loans removed

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EXAMPLE 1 Federal Awards ExpendedExample Federal Programs from SEFADepartment of Agriculture

Child Nutrition Cluster 650,000 10.415 Rural Rental Housing Loans 83,000,000

Research & Development (R&D) Cluster (multiple CFDA #s) 20,000,000 Department of Housing and Urban Development

14.235 Supportive Housing Program 722,000 14.881 Moving to Work Demonstration Program 2,225,000

Department of Health and Human Services93.563 Child Support Enforcement 825,000 93.015 HIV Prevention Program 200,000

Department of Education84.002 Adult Education 400,000 Trio Cluster 699,000

Student Financial Assistance (SFA) Cluster 84.268 Federal Direct Student Loans 159,000,000 84.038 Federal Perkins Loan Program 5,000,000 84.063 Federal Grant Program 859,000

84.033 Federal Work-Study Program 290,000 Total SFA Cluster 165,149,000

Total Expenditures (Loans and Non-Loans) 273,870,000$ (Loan programs are highlighted in yellow) Type A/B Threshold before Excluding "Large" Loan Programs 3,000,000$

Introduction

Auditee Name

Year End

Major Program Determination Worksheet

This major program determination worksheet is intended for use for audits of non-federal entities subject to the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR 200 (Uniform Guidance). Although this worksheet may be used for all single audits, it was developed for use by auditors auditing small to medium sized entities. Use of this worksheet also assumes the auditor has been engaged to perform a single audit and has determined that the entity meets the threshold for a single audit (total federal expenditures of $750,000 or more). It also assumes that the program specific audit election is not applicable.

Teresa Bordeaux: Teresa Bordeaux:Do we need a link to 2 CFR 200? I can't insert the link within the cell but maybe we could add a link at the bottom.

Major Program Determination - Links to Worksheet Tabs

Low-Risk Auditee Determination

Step 1 - Determination of Type A/B Threshold

Step 2 - Identification of Low-Risk Type A Programs

Step 3 - Identification of High-Risk Type B Programs

Step 4 - Determination of Major Programs

Summary of Federal Expenditures and Major Program Determination

Notice to Readers: The cells in this worksheet are not locked. Please use caution when making any changes to this worksheet. AICPA is not responsible for errors caused by changes to this worksheet.

Teresa Bordeaux: Teresa Bordeaux:This will need to be tweaked but I wanted to put a place holder here and below for disclaimer language.

Should we include a link to the GAS/SA guide or refer them to the guide?

Notice to Readers: This publication is designed to provide illustrative information with respect to the subject matter covered. It does not establish standards or preferred practices. The material was prepared by staff of the AICPA Governmental Audit Quality Center and published by the AICPA and is presumed to be appropriate. This document has not approved, disapproved, or otherwise acted upon by a senior technical committee of the AICPA and does not represent an official opinion or position of the AICPA. It is provided with the understanding that the staff and publisher are not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. The staff and publisher make no representations, warranties, or guarantees about, and assume no responsibility for, the content or application of the material contained herein and expressly disclaim all liability for any damages arising out of the use of, reference to, or reliance on such material.

&A

Summary of Federal Expenditures

Auditee Name

Year End



Teresa Bordeaux: Teresa Bordeaux:Do we need to include the threshold somewhere on this page from Step 1?

Review the auditee's Schedule of Expenditures of Federal Awards (SEFA) (note - GAQC's SEFA Practice Aid can be used to review the auditee's SEFA) and complete columns A through D below.

Complete columns E through I as the auditor performs the major program determination steps in the workbook.

ABCDEFGHI

CFDA#(If the program is a cluster, include all CFDA #s in the cluster with expenditures)PROGRAM NAME/CLUSTER NAMEFederal Program Total or Cluster Total1Loan/ Loan Guarantee (Y/N)2 Type A/B (A/B)Low-Risk Type A (Y/N/NA)High-Risk Type B (Y/N/NA)Additional Programs Selected as Major to Meet % of CoverageMajor Program Amounts(Include the "Federal Program Total or Cluster Total" (Column C) in this column if it is not a "Low Risk Type A" (column F is marked "N") or if it is a "High Risk Type B" (column G is marked "Y") or if it has been selected to meet the required percentage of coverage)

(Step 1)(Step 2)(Step 3)(Step 4)(Step 4)

Total Federal Expenditures1Sum of amounts of programs selected as major programs(A)

Percentage of coverage required (20% or 40%) (from Low-Risk Auditee Determination tab)40%

Dollar amount of expenditures required to be audited to meet % of coverage requirement (multiply total federal expenditures in column D by the percentage of coverage required)$ - 0

(B)

Determine if the coverage requirement is met.If (A) is greater than (B), choose "Yes - coverage requirement met" If (B) is greater than (A), choose "No - select additional major programs" and select more programs above.No - select additional major programs

1 Auditor should summarize the expenditures from the auditee's SEFA by program (same CFDA #) or cluster total and include the total program amounts here. (Each line above should represent a type A or type B program.)

2 Review the tab "Considering Effects of Loans" & determine if the program is considered a loan program.

3 This total should agree to the auditee's final SEFA and Data Collection Form (DCF). Auditors that use the prior-year SEFA or preliminary current-year expenditure estimates to plan the audit should recalculate the threshold for type A programs based on the final amounts to ensure that federal awards are properly classified as type A or B.

&A

Low Risk Auditee Determination

Auditee Name

Year End


LOW RISK AUDITEE STATUS DETERMINATION (§200.520)

An auditee that meets all of the following conditions for each of the preceding two audit periods must qualify as a low-risk auditee and be eligible for reduced audit coverage (20% instead of 40%) in accordance with §200.518 Major program determination.

Did the auditee meet all of the following conditions in each of the two prior audit periods? Respond "Yes" or "No" to each question. Any "No" response precludes low-risk auditee status.

YEAR 1YEAR 2COMMENTS

MM/DD/YYYYMM/DD/YYYY

(a)Single audits were performed on an annual basis in accordance with the provisions of Subpart F of the Uniform Guidance*.

(a1)The Data Collection Form (DCF) and reporting package were submitted to Federal Audit Clearinghouse within timeframe specified in 200.512.

(a2)The auditee does not have biennial audits. (A non-Federal entity that as biennial audits does not qualify as a low-risk auditee.)

(b)The auditor's opinion on whether the financial statements were prepared in accordance with generally accepted accounting principles (GAAP), or a basis of accounting required by state law, and the auditor's in-relation-to opinion on the Schedule of Expenditures of Federal Awards (SEFA) were unmodified.1

(c)There were no deficiencies in internal control which were identified as material weaknesses (MW) under the requirements of Generally Accepted Government Auditing Standards (GAGAS).

(d)The auditor did not report a substantial doubt about the auditee's ability to continue as a going concern.

(e)None of the Federal programs had audit findings from any of the following in either of the preceding two audit periods in which they were classified as type A programs:

(e1)Internal control deficiencies that were identified as material weaknesses in the auditor's report on internal control for major programs as required under §200.515 Audit reporting, paragraph (c); or

(e2)A modified opinion on a major program in the auditor's report on major programs as required under §200.515 Audit reporting, paragraph (c); or

(e3)Known or likely questioned costs that exceeded five percent of the total Federal awards expended for a type A program during the audit period.

CONCLUSION: AUDITEE QUALIFIES AS LOW RISK AUDITEE?2

PERCENTAGE OF COVERAGE REQUIRED340%

WARNING: An auditor may not use professional judgment to override these required conditions for low-risk auditee status. For example, it would not be appropriate for an auditor to make a determination that a material weakness under the requirements of Government Auditing Standards GAGAS that was reported in one of the preceding two audit periods would not be important enough to cause an entity to lose its low-risk auditee status.

*For audits of fiscal years ending before December 26, 2015, single audits performed under OMB Circular A-133 will meet this requirement.

1 Unless required by state law, an auditee that prepares its financial statements on a non-GAAP basis of accounting, such as the cash or modified cash basis, cannot be considered a low-risk auditee.

2 If auditee fails to meet any of the criteria above for either of the two preceding years, the auditee does not qualify as a low-risk auditee.

3 The percentage of coverage requirement is the last step in determining major programs and cannot be calculated until all other steps have been performed. If the auditee does not qualify as a low-risk auditee, the percentage of coverage required is at least 40% of total federal expenditures. If the auditee qualifies as a low-risk auditee, the percentage of coverage required is at least 20% of total federal expenditures.

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Step 1 - Threshold

Auditee Name

Year End


Major Program Determination - Step 1 - Determine Type A Threshold

Total Federal awards expendedType A/B threshold

Step one. (1) The auditor must identify the larger Federal programs, which must be labeled Type A programs. Type A programs are defined as Federal programs with Federal awards expended during the audit period exceeding the levels outlined in the table in this paragraph (b)(1):Equal to or exceed $750,000 but less than or equal to $25 million$750,000

Exceed $25 million but less than or equal to $100 millionTotal Federal awards expended times .03.

Exceed $100 million but less than or equal to $1 billion$3 million.

Exceed $1 billion but less than or equal to $10 billionTotal Federal awards expended times .003.

Total Federal Expenditures from auditee's SEFA1$ - 0Exceed $1 billion but less than or equal to $10 billionTotal Federal awards expended times .003.

Exceed $10 billion but less than or equal to $20 billion$30 million.

Less Large Loans2$ - 0Exceed $20 billionTotal Federal awards expended times .0015.

Total Federal Expenditures adjusted for effect of large loans.$ - 0

Using the table on the right, determine the type A threshold$ - 0

Using the threshold determined above, go to the tab "Summary of Federal Expenditures" and identify the type A and type B programs. If the federal expenditures for a program or cluster meet or exceed the threshold above, identify them as type A in column E in the "Summary of Federal Expenditures" tab. If the federal expenditures for a program or cluster are below the threshold label them as type B in column E in the "Summary of Federal Expenditures" tab.

1 Federal awards expended for purposes of determining type A and type B programs are the amount of cash and noncash awards, after all adjustments are made in the final current-year SEFA. Auditors that use the prior-year SEFA or preliminary current-year expenditure estimates to plan the audit should recalculate the threshold for type A programs based on the final amounts to ensure that federal awards are properly classified as type A or B.

2Are loans and/or loan guarantees included on the SEFA? Auditor will need to recalculate the type A threshold excluding any large loans. See the requirements from 200.518 below and the example calculation at Tab "Considering Effects of Loans."

"The inclusion of large loan and loan guarantees (loans) must not result in the exclusion of other programs as type A programs. When a Federal program providing loans exceeds four times the largest non-loan program it is considered a large loan program, and the auditor must consider this Federal program as a type A program and exclude its values in determining other type A programs. This recalculation of the type A program is performed after removing the total of all large loan programs. For the purposes of this paragraph a program is only considered to be a Federal program providing loans if the value of Federal awards expended for loans within the program comprises fifty percent or more of the total Federal awards expended for the program. A cluster of programs is treated as one program and the value of Federal awards expended under a loan program is determined as described in §200.502 Basis for determining Federal awards expended."

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Step 2-ID Low-Risk Type A

Auditee Name

Year End


Major Program Determination - Step 2 - Type A Risk Assessment

For a type A program to be considered low-risk, it must meet all of the following criteria:

CRITERIA 1 For a type A program to be considered low-risk, it must have been audited as a major program in at least one of the two most recent audit periods (in the most recent audit period in the case of a biennial audit).

CRITERIA 2In the most recent audit period, the program must have not had 1) internal control deficiencies which were identified as material weaknesses in the auditor's report on internal control for major programs as required under 200.515 Audit reporting, paragraph (c); (2) a modified opinion on the program in the auditor's report on major programs as required under 200.515 Audit reporting, paragraph (c); or known or likely questioned costs that exceed five percent of the total federal awards expended for the program.

CRITERIA 3The progam did not have any of the following: Auditor must consider whether the requirements in 200.519 Criteria for Federal program risk paragraph (c) (Oversight exercised by Federal agencies and pass-through entities. (1) Oversight exercised by Federal agencies or pass-through entities could be used to assess risk. For example, recent monitoring or other reviews performed by an oversight entity that disclosed no significant problems would indicate lower risk, whereas monitoring that disclosed significant problems would indicate higher risk. (2) Federal agencies, with the concurrence of OMB, may identify Federal programs that are higher risk. OMB will provide this identification in the compliance supplement), the results of audit follow-up, or any changes in personnel or systems affecting the program indicate significantly increased risk and preclude the program from being low risk.

List below all federal programs from the auditee's SEFA that meet the type A threshold and are identified as type A on "Summary of Federal Expenditures" tab.WAS THE PROGRAM/ CLUSTER AUDITED AS A MAJOR PROGRAM IN EITHER - ANSWER YES OR NO: 1CRITERIA - Answer Yes or No and Provide Supporting Documentation in the Comments FieldLOW RISK TYPE A PROGRAM? ( If the type A program is determined to be low risk, indicate "Y" in column F in the "Summary of Federal Expenditures" tab. If the type A program is not low risk, indicate "N' in column F in the "Summary of Federal Expenditures" tab.)COMMENTS

CFDA # (s) (If a cluster, list all CFDA#s with expenditures, separating them with a "/")PROGRAM/ CLUSTER NAMEPY1

Teresa Bordeaux: Teresa Bordeaux:Do we need to include the fiscal years here? XX/XX/XXXX?PY2123Yes or No (If both PY1 and PY2 are marked "NO" and/or there are any "NO" for criteria 1, 2 or 3, the type A program is not low risk and should be marked "NO")

1If a type A program/cluster includes a new program that was added an "other cluster" in the current year, the program was not audited in the prior 2 years and the cluster cannot be considered as audited in the prior 2 years because of the new program added.

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Step 3-ID High-Risk Type B

Auditee Name

Year End


Major Program Determination - Step 3 - Type B Risk Assessment

Step three. (1) The auditor must identify Type B programs which are high-risk using professional judgment and the criteria in §200.519 Criteria for Federal program risk. However, the auditor is not required to identify more high-risk Type B programs than at least one fourth the number of low-risk Type A programs identified as low-risk under Step 2 (paragraph (c) of this section). Except for known material weakness in internal control or compliance problems as discussed in §200.519 Criteria for Federal program risk paragraphs (b)(1), (b)(2), and (c)(1), a single criteria in risk would seldom cause a Type B program to be considered high-risk. When identifying which Type B programs to risk assess, the auditor is encouraged to use an approach which provides an opportunity for different high-risk Type B programs to be audited as major over a period of time.

# of Low-Risk type A programs from Step 2

# of high-risk type B programs auditor is required to identify (1/4 times the # of low-risk type A programs above. Note: The auditor cannot round down the number required. For example, if there are 3 low-risk type A programs, the auditor is required to identify one type B program as high-risk to meet the at least 1/4 requirement.

List below the Type B programs that the auditor will risk assess in order to identify at least 1/4 the number of low-risk Type A programs.

Do not include small type B programs.1 Note: The auditor is not required to identify more high-risk Type B programs than at least 1/4 the number of low-risk Type A programs identified under Step 2.

However, under Step 4, the auditor is required to audit all programs identified in this step as high-risk.

CRITERIA FOR FEDERAL PROGRAM RISK - §200.519

CFDA # (s) (If a cluster, list all CFDA#s with expenditures, separating them with a "/")PROGRAM/ CLUSTER NAMEABCDEFGHI JComments (Document the auditor's reason for assessing the program as having higher or lower risk for each criterion.)CONCLUSION: HIGH-RISK TYPE B? ( If the type B program is determined to be high risk, indicate "Y" in column G in the "Summary of Federal Expenditures" tab. If the type B program is not high risk, indicate "N' in column G in the "Summary of Federal Expenditures" tab.)

Erica Forhan: Erica Forhan:Add a Yes/No drop-down option; or better yet - "High-Risk Type B" or "Not High-Risk Type B"

TB - inserted drop downs for high risk or not high risk

LOWERHIGHERHIGHERHIGHERHIGHERHIGHERHIGHERHIGHERLOWERHIGHER

Note: Except for known material weakness in internal control or compliance problems as discussed in the highlighted items A, D , and F, a single criteria in risk would seldom cause a Type B program to be considered high-risk.

ACurrent and prior audit experience. (1) Weaknesses in internal control over Federal programs would indicate higher risk. Consideration should be given to the control environment over Federal programs and such factors as the expectation of management's adherence to Federal statutes, regulations, and the terms and conditions of Federal awards and the competence and experience of personnel who administer the Federal programs.

B(i) A Federal program administered under multiple internal control structures may have higher risk. When assessing risk in a large single audit, the auditor must consider whether weaknesses are isolated in a single operating unit (e.g., one college campus) or pervasive throughout the entity.

C(ii) When significant parts of a Federal program are passed through to subrecipients, a weak system for monitoring subrecipients would indicate higher risk.

D(2) Prior audit findings would indicate higher risk, particularly when the situations identified in the audit findings could have a significant impact on a Federal program or have not been corrected.

E(3) Federal programs not recently audited as major programs may be of higher risk than Federal programs recently audited as major programs without audit findings.

F(c) Oversight exercised by Federal agencies and pass-through entities. (1) Oversight exercised by Federal agencies or pass-through entities could be used to assess risk. For example, recent monitoring or other reviews performed by an oversight entity that disclosed no significant problems would indicate lower risk, whereas monitoring that disclosed significant problems would indicate higher risk.

G(2) Federal agencies, with the concurrence of OMB, may identify Federal programs that are higher risk. OMB will provide this identification in the compliance supplement.

H(d) Inherent risk of the Federal program. (1) The nature of a Federal program may indicate risk. Consideration should be given to the complexity of the program and the extent to which the Federal program contracts for goods and services. For example, Federal programs that disburse funds through third party contracts or have eligibility criteria may be of higher risk. Federal programs primarily involving staff payroll costs may have high risk for noncompliance with requirements of §200.430 Compensation—personal services, but otherwise be at low risk

I(2) The phase of a Federal program in its life cycle at the Federal agency may indicate risk. For example, a new Federal program with new or interim regulations may have higher risk than an established program with time-tested regulations. Also, significant changes in Federal programs, statutes, regulations, or the terms and conditions of Federal awards may increase risk.

J(3) The phase of a Federal program in its life cycle at the auditee may indicate risk. For example, during the first and last years that an auditee participates in a Federal program, the risk may be higher due to start-up or closeout of program activities and staff.

K(4) Type B programs with larger Federal awards expended would be of higher risk than programs with substantially smaller Federal awards expended.

1Small type B programs are those that do not exceed 25% of the Type A threshold.

2Note: The auditor cannot round down when determining how many they are required to identify. For example, if there are 3 low-risk Type A programs, the auditor would need to perform risk assessments until they have identified at least 1 high-risk type B in order to meet the requirement to identify at least 1/4 the number of low-risk type A programs.

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Step 4-Determine Major Programs

Auditee Name

Year End


Major Program Determination - Step 4 - Determine Major Programs

Complete the "Summary of Federal Expenditures" tab of this worksheet

(e) Step four. At a minimum, the auditor must audit all of the following as major programs:

(1) All Type A programs not identified as low risk under step two (paragraph (c)(1) of this section).Include the total federal program amount from column C in column I if the type A program was identified as other than low risk in step two (column F was marked "N")

(2) All Type B programs identified as high-risk under step three (paragraph (d) of this section).Include the total federal program amount from column D in column I if the type B program was identified as high risk under step three (column G was marked "Y")

Additional programs needed to meet Percentage of CoverageContinue completing the "Summary of Federal Expenditures" tab and select additional programs needed to meet percentage of coverage requirement

Teresa Bordeaux: Teresa Bordeaux:I'm concerned that auditors will stop once they've gotten to the % of coverage. Do we need a caution here or on the summary SEFA that cautions that they have to perform the steps in order and don't evaluate the % of coverage until the last step?

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Considering Effects of Loans

Considering the Effects of Loans on the Type A Threshold

Uniform Guidance, §200.518 (a)(3):"The inclusion of large loan and loan guarantees (loans) must not result in the exclusion of other programs as Type A programs. When a federal program providing loans exceeds four times the largest non-loan program it is considered a large loan program, and the auditor must consider this federal program as a Type A program and exclude its values in determining other Type A programs. This recalculation of the Type A program is performed after removing the total of all large loan programs. For the purposes of this paragraph a program is only considered to be a federal program providing loans if the value of federal awards expended for loans within the program comprises fifty percent or more of the total federal awards expended for the program. A cluster of programs is treated as one program and the value of federal awards expended under a loan program is determined as described in §200.502 Basis for determining federal awards expended."

Steps to Recalculate Type A Threshold Excluding Large Loan Programs

Note: Before performing the steps below, review the SEFA and determine which programs are considered loan programs. For the purposes of this calculation, a program is only considered to be a federal program providing loans if the value of federal awards expended for loans within the program comprises 50% or more of the total federal awards of the program or cluster.

1) Determine the amount of the largest non loan program (programs in clusters and programs with the same CFDA # are considered as one program)

2) Determine which loan programs exceed 4 times the largest non-loan program in step 1 and are considered large loan programs. (Note: These amounts will be excluded in determining the Type A threshold but these programs will be considered as Type A programs.)

3) Recalculate the Type A threshold after removing the large loan programs from the total federal expenditures. (Note: If the total federal expenditures are less than $25 million, it is not necessary to recalculate threshold as the minimum Type A threshold (and the threshold for total expenditures less than $25 million) is $750,000 and the recalculated threshold cannot go below this amount.)

EXAMPLE 1 Federal Awards Expended

Example Federal Programs from SEFA

Department of Agriculture

Child Nutrition Cluster650,000

10.415 Rural Rental Housing Loans83,000,000

Research & Development (R&D) Cluster (multiple CFDA #s)20,000,000

Department of Housing and Urban Development

14.235 Supportive Housing Program722,000

14.881 Moving to Work Demonstration Program2,225,000

Department of Health and Human Services

93.563 Child Support Enforcement825,000

93.015 HIV Prevention Program200,000

Department of Education

84.002 Adult Education400,000

Trio Cluster699,000

Student Financial Assistance (SFA) Cluster

84.268 Federal Direct Student Loans159,000,000

84.038 Federal Perkins Loan Program5,000,000

84.063 Federal Grant Program859,000

84.033 Federal Work-Study Program290,000

Total SFA Cluster165,149,000

Total Expenditures (Loans and Non-Loans)$ 273,870,000

(Loan programs are highlighted in yellow)

Type A/B Threshold before Excluding "Large" Loan Programs$ 3,000,000

STEP 1 - DETERMINE THE LARGEST NON LOAN PROGRAM

Based on review of the federal programs above, the R& D Cluster is the largest non-loan program

R&D Cluster - Largest non-loan program$ 20,000,000

STEP 2 - DETERMINE THE LARGE LOAN PROGRAMS

Calculate 4 Times the Largest Non-Loan Program

Largest Non-Loan Program - R&D (per Step 1 above)20,000,000

Multiply by 4X 4

Total of 4 Times the largest Non-Loan Program or cluster$ 80,000,000

Which loan program(s) exceed 4 times the largest non-loan program?

SFA Cluster $ 165,149,000

10.415 Rural Rental Housing Loans$ 83,000,000

(The SFA cluster is considered a loan program because the loan portion of the cluster

comprises 50% or more of the total federal expenditures of the SFA cluster.)

STEP 3 - RECALCULATE THE THRESHOLD EXCLUDING THE LARGE LOAN PROGRAM(S)

Type A Threshold Calculation without "Large" Loans

Total Federal Expenditures (Loans and Non-Loans)$ 273,870,000

Less "Large" Loan Program(s)248,149,000

Total Federal Expenditures without "Large" Loan programs$ 25,721,000

Type A/B Threshold from Table/Recalculated Threshold771,630

(25,721,000*.03)

Type A Programs for FY 20XX

SFA Cluster$ 165,149,000

R&D Cluster$ 20,000,000

93.563 Child Support Enforcement$ 825,000


14.881 Moving to Work Demonstration Program$ 2,225,000

&A

Sheet3

YESYLOWER

NONHIGHER

Yes - coverage requirement met

No - select additional major programs

20%

40%

High Risk Type B

Not High Risk Type B

Action 1 – Determine the largest non-loan program

31

ACTION 1 - DETERMINE THE LARGEST NON LOAN PROGRAM Based on review of the federal programs above, the R& D Cluster is the largest non-loan program

R&D Cluster - Largest non-loan program 20,000,000$

Introduction

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ABCDEFGHI






(B)





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Step 1 - Threshold

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Step three. (1) The auditor must identify Type B programs which are high-risk using professional judgment and the criteria in §200.519 Criteria for Federal program risk. However, the auditor is not required to identify more high-risk Type B programs than at least one fourth the number of low-risk Type A programs identified as low-risk under Step 2 (paragraph (c) of this section). Except for known material weakness in internal control or compliance problems as discussed in §200.519 Criteria for Federal program risk paragraphs (b)(1), (b)(2), and (c)(1), a single criteria in risk would seldom cause a Type B program to be considered high-risk. When identifying which Type B programs to risk assess, the auditor is encouraged to use an approach which provides an opportunity for different high-risk Type B programs to be audited as major over a period of time.

# of Low-Risk type A programs from Step 2

# of high-risk type B programs auditor is required to identify (1/4 times the # of low-risk type A programs above. Note: The auditor cannot round down the number required. For example, if there are 3 low-risk type A programs, the auditor is required to identify one type B program as high-risk to meet the at least 1/4 requirement.

List below the Type B programs that the auditor will risk assess in order to identify at least 1/4 the number of low-risk Type A programs.

Do not include small type B programs.1 Note: The auditor is not required to identify more high-risk Type B programs than at least 1/4 the number of low-risk Type A programs identified under Step 2.

However, under Step 4, the auditor is required to audit all programs identified in this step as high-risk.

CRITERIA FOR FEDERAL PROGRAM RISK - §200.519

CFDA # (s) (If a cluster, list all CFDA#s with expenditures, separating them with a "/")PROGRAM/ CLUSTER NAMEABCDEFGHI JComments (Document the auditor's reason for assessing the program as having higher or lower risk for each criterion.)CONCLUSION: HIGH-RISK TYPE B? ( If the type B program is determined to be high risk, indicate "Y" in column G in the "Summary of Federal Expenditures" tab. If the type B program is not high risk, indicate "N' in column G in the "Summary of Federal Expenditures" tab.)

Erica Forhan: Erica Forhan:Add a Yes/No drop-down option; or better yet - "High-Risk Type B" or "Not High-Risk Type B"

TB - inserted drop downs for high risk or not high risk

LOWERHIGHERHIGHERHIGHERHIGHERHIGHERHIGHERHIGHERLOWERHIGHER

Note: Except for known material weakness in internal control or compliance problems as discussed in the highlighted items A, D , and F, a single criteria in risk would seldom cause a Type B program to be considered high-risk.

ACurrent and prior audit experience. (1) Weaknesses in internal control over Federal programs would indicate higher risk. Consideration should be given to the control environment over Federal programs and such factors as the expectation of management's adherence to Federal statutes, regulations, and the terms and conditions of Federal awards and the competence and experience of personnel who administer the Federal programs.

B(i) A Federal program administered under multiple internal control structures may have higher risk. When assessing risk in a large single audit, the auditor must consider whether weaknesses are isolated in a single operating unit (e.g., one college campus) or pervasive throughout the entity.

C(ii) When significant parts of a Federal program are passed through to subrecipients, a weak system for monitoring subrecipients would indicate higher risk.

D(2) Prior audit findings would indicate higher risk, particularly when the situations identified in the audit findings could have a significant impact on a Federal program or have not been corrected.

E(3) Federal programs not recently audited as major programs may be of higher risk than Federal programs recently audited as major programs without audit findings.

F(c) Oversight exercised by Federal agencies and pass-through entities. (1) Oversight exercised by Federal agencies or pass-through entities could be used to assess risk. For example, recent monitoring or other reviews performed by an oversight entity that disclosed no significant problems would indicate lower risk, whereas monitoring that disclosed significant problems would indicate higher risk.

G(2) Federal agencies, with the concurrence of OMB, may identify Federal programs that are higher risk. OMB will provide this identification in the compliance supplement.

H(d) Inherent risk of the Federal program. (1) The nature of a Federal program may indicate risk. Consideration should be given to the complexity of the program and the extent to which the Federal program contracts for goods and services. For example, Federal programs that disburse funds through third party contracts or have eligibility criteria may be of higher risk. Federal programs primarily involving staff payroll costs may have high risk for noncompliance with requirements of §200.430 Compensation—personal services, but otherwise be at low risk

I(2) The phase of a Federal program in its life cycle at the Federal agency may indicate risk. For example, a new Federal program with new or interim regulations may have higher risk than an established program with time-tested regulations. Also, significant changes in Federal programs, statutes, regulations, or the terms and conditions of Federal awards may increase risk.

J(3) The phase of a Federal program in its life cycle at the auditee may indicate risk. For example, during the first and last years that an auditee participates in a Federal program, the risk may be higher due to start-up or closeout of program activities and staff.

K(4) Type B programs with larger Federal awards expended would be of higher risk than programs with substantially smaller Federal awards expended.

1Small type B programs are those that do not exceed 25% of the Type A threshold.

2Note: The auditor cannot round down when determining how many they are required to identify. For example, if there are 3 low-risk Type A programs, the auditor would need to perform risk assessments until they have identified at least 1 high-risk type B in order to meet the requirement to identify at least 1/4 the number of low-risk type A programs.

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Step 4-Determine Major Programs

Auditee Name

Year End


Major Program Determination - Step 4 - Determine Major Programs

Complete the "Summary of Federal Expenditures" tab of this worksheet

(e) Step four. At a minimum, the auditor must audit all of the following as major programs:

(1) All Type A programs not identified as low risk under step two (paragraph (c)(1) of this section).Include the total federal program amount from column C in column I if the type A program was identified as other than low risk in step two (column F was marked "N")

(2) All Type B programs identified as high-risk under step three (paragraph (d) of this section).Include the total federal program amount from column D in column I if the type B program was identified as high risk under step three (column G was marked "Y")

Additional programs needed to meet Percentage of CoverageContinue completing the "Summary of Federal Expenditures" tab and select additional programs needed to meet percentage of coverage requirement

Teresa Bordeaux: Teresa Bordeaux:I'm concerned that auditors will stop once they've gotten to the % of coverage. Do we need a caution here or on the summary SEFA that cautions that they have to perform the steps in order and don't evaluate the % of coverage until the last step?

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Considering Effects of Loans

Considering the Effects of Loans on the Type A Threshold

Uniform Guidance, §200.518 (a)(3):"The inclusion of large loan and loan guarantees (loans) must not result in the exclusion of other programs as Type A programs. When a federal program providing loans exceeds four times the largest non-loan program it is considered a large loan program, and the auditor must consider this federal program as a Type A program and exclude its values in determining other Type A programs. This recalculation of the Type A program is performed after removing the total of all large loan programs. For the purposes of this paragraph a program is only considered to be a federal program providing loans if the value of federal awards expended for loans within the program comprises fifty percent or more of the total federal awards expended for the program. A cluster of programs is treated as one program and the value of federal awards expended under a loan program is determined as described in §200.502 Basis for determining federal awards expended."

Steps to Recalculate Type A Threshold Excluding Large Loan Programs

Note: Before performing the steps below, review the SEFA and determine which programs are considered loan programs. For the purposes of this calculation, a program is only considered to be a federal program providing loans if the value of federal awards expended for loans within the program comprises 50% or more of the total federal awards of the program or cluster.

1) Determine the amount of the largest non loan program (programs in clusters and programs with the same CFDA # are considered as one program)

2) Determine which loan programs exceed 4 times the largest non-loan program in step 1 and are considered large loan programs. (Note: These amounts will be excluded in determining the Type A threshold but these programs will be considered as Type A programs.)

3) Recalculate the Type A threshold after removing the large loan programs from the total federal expenditures. (Note: If the total federal expenditures are less than $25 million, it is not necessary to recalculate threshold as the minimum Type A threshold (and the threshold for total expenditures less than $25 million) is $750,000 and the recalculated threshold cannot go below this amount.)

EXAMPLE 1 Federal Awards Expended

Example Federal Programs from SEFA

Department of Agriculture

Child Nutrition Cluster650,000

10.415 Rural Rental Housing Loans83,000,000

Research & Development (R&D) Cluster (multiple CFDA #s)20,000,000

Department of Housing and Urban Development

14.218 Community Development Block Grants722,000

14.871 Section 8 Housing Choice Vouchers2,225,000

Department of Health and Human Services

93.044 Special Programs for the Aging825,000

93.015 HIV Prevention Program200,000

Department of Education

84.002 Adult Education400,000

Trio Cluster699,000

Student Financial Assistance (SFA) Cluster

84.268 Federal Direct Student Loans159,000,000

84.038 Federal Perkins Loan Program5,000,000

84.063 Federal Grant Program859,000

84.033 Federal Work-Study Program290,000

Total SFA Cluster165,149,000

Total Expenditures (Loans and Non-Loans)$ 273,870,000

(Loan programs are highlighted in yellow)

Type A/B Threshold before Excluding "Large" Loan Programs$ 3,000,000

ACTION 1 - DETERMINE THE LARGEST NON LOAN PROGRAM

Based on review of the federal programs above, the R& D Cluster is the largest non-loan program

R&D Cluster - Largest non-loan program$ 20,000,000

ACTION 2 - DETERMINE THE LARGE LOAN PROGRAMS

Calculate 4 Times the Largest Non-Loan Program

Largest Non-Loan Program - R&D (per Step 1 above)20,000,000

Multiply by 4X 4

Total of 4 Times the largest Non-Loan Program or cluster$ 80,000,000

Which loan program(s) exceed 4 times the largest non-loan program?

SFA Cluster $ 165,149,000


(The SFA cluster is considered a loan program because the loan portion of the cluster

comprises 50% or more of the total federal expenditures of the SFA cluster.)

STEP 3 - RECALCULATE THE THRESHOLD EXCLUDING THE LARGE LOAN PROGRAM(S)

Type A Threshold Calculation without "Large" Loans

Total Federal Expenditures (Loans and Non-Loans)$ 273,870,000

Less "Large" Loan Program(s)248,149,000

Total Federal Expenditures without "Large" Loan programs$ 25,721,000

Type A/B Threshold from Table/Recalculated Threshold771,630

(25,721,000*.03)

Type A Programs for FY 20XX

SFA Cluster$ 165,149,000

R&D Cluster$ 20,000,000

93.044 Special Programs for Aging$ 825,000


14.871 Section 8 Housing Vouchers$ 2,225,000

&A

Sheet3

YESYLOWER

NONHIGHER

Yes - coverage requirement met

No - select additional major programs

20%

40%

High Risk Type B

Not High Risk Type B

Action 2 – Determine the large loan programs

32

ACTION 2 - DETERMINE THE LARGE LOAN PROGRAMSCalculate 4 Times the Largest Non-Loan ProgramLargest Non-Loan Program - R&D (per Step 1 above) 20,000,000 Multiply by 4 X 4Total of 4 Times the largest Non-Loan Program or cluster 80,000,000$

Which loan program(s) exceed 4 times the largest non-loan program? SFA Cluster 165,149,000$ 10.415 Rural Rental Housing Loans 83,000,000$

(The SFA cluster is considered a loan program because the loan portion of the clustercomprises 50% or more of the total federal expenditures of the SFA cluster.)

Introduction

Auditee Name

Year End















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Auditee Name

Year End






ABCDEFGHI






(B)





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Year End
























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Step 1 - Threshold

Auditee Name

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Step three. (1) The auditor must identify Type B programs which are high-risk using professional judgment and the criteria in §200.519 Criteria for Federal program risk. However, the auditor is not required to identify more high-risk Type B programs than at least one fourth the number of low-risk Type A programs identified as low-risk under Step 2 (paragraph (c) of this section). Except for known material weakness in internal control or compliance problems as discussed in §200.519 Criteria for Federal program risk paragraphs (b)(1), (b)(2), and (c)(1), a single criteria in risk would seldom

single audit fundamentals part 2: the mysteries of major ......if state law permits but does not...

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