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What to Expect on an A-133 AuditEllie Thedford, CGAP, Senior AuditorParsons Townsend, CGAP, CICA, Senior AuditorTexas State Auditors OfficeOctober 9, 2013Texas Association of Student Financial Aid Administrators Fall Conference 2013John Keel, CPAJohn Keel, CPASTART0ObjectivesSingle Audit OverviewInitial Project PlanningPreparing for an AuditFieldworkFindings and Management Responses1John Keel, CPA1Single audit overviewJohn Keel, CPASingle Audit BackgroundEstablished by the Single Audit Act of 1984 (amended in 1996).Applies to non-profit and government entities that expend $500,000 or more in federal awards annually.

2John Keel, CPA3Single Audit BackgroundComponents of the Single Audit.Financial statement opinion audit.Report on compliance and internal control over compliance for each major program.Schedule of Expenditures of Federal Awards (SEFA).

3John Keel, CPASingle Audit BackgroundCompliance Portion Objectives:Obtain understanding of internal controls over compliance for each major program, assess control risk of noncompliance, and perform tests of controls.Determine whether the entity complied with laws and regulations that may have a direct and material effect on each major program.

4John Keel, CPASingle Audit BackgroundSEFA ObjectiveDetermine whether the Schedule of Expenditures of Federal Awards (SEFA) is fairly presented in relation to the entitys financial statements as a whole.

Note: Because the SEFA serves as the primary basis for major program determination, the accuracy and completeness of the SEFA is very important to the Single Audit.

5John Keel, CPASingle Audit in TexasFor fiscal year 2012, the State expended:$50.2 billion in federal funds.$4 billion in Student Financial Assistance (SFA) cluster federal funds.The state audit covers all entities included in the States Comprehensive Annual Financial Report (CAFR). Does not include community colleges or private institutions.

6John Keel, CPA$50.2 Billion- SEFA FY 12 page 192$4 Billion SFA- SEFA FY 12 page 1807Proposed Changes to the Single AuditConsolidation of Circulars (8 into 1).Change in selection of Type A and Type B major program determinations.Reduction and consolidation of required compliance areas for testing.Additional findings requirements: Repeat findingSample size support for statistical samples

7John Keel, CPAStudent Financial Assistance Cluster84.007 Federal Supplementation Educational Opportunity Grant84.033 Federal Work Study84.038 Federal Perkins Loans84.063 Federal Pell Grant Program84.268 Federal Direct Student Loans84.379 Teacher Education Assistance for College and Higher Education Grant84.408 Iraq and Afghanistan Service Grants93.264 Nurse Faculty Loan Program93.342 Health Professions Student Loans, including Primary Care Loans and Loans for Disadvantaged Students93.364 Nursing Student Loans93.408 ARRA- Nurse Faculty Loan Program93.925 SDS

8John Keel, CPAOMB Compliance Supplement- Part 5- Page 5-3-19Audit Time Line9John Keel, CPAInitial project planningJohn Keel, CPAMajor Program DeterminationProcess to determine which programs should be included in annual A-133 audit.Required to cover at least 50 percent of federal expenditures each year.For State of Texas, the determination is done by the State Auditor Offices contractor.

10John Keel, CPAMajor Program CoverageTo obtain sufficient audit coverage for the SFA cluster, we must audit multiple higher education institutions each year.We perform limited proceduresfor some of the higher education institutions with lower SFA cluster expenditures each year.

11John Keel, CPASite Selection ConsiderationsSFA cluster expenditures Larger institutions audited annuallyDesignation of tiersPrior audit results.Fraud complaints.Other risk notes, including other internal or external audits.Time since last audit.Southern Association of Colleges and Schools (SACS) accreditation cycle.

12John Keel, CPAInitial PlanningInitial contact.Engagement letter and expectations memo.Scheduling on-site fieldwork.Control questionnaires or documentsSeparate questionnaires or documents for each compliance area.Information and population requests.Multiple populations required.

13John Keel, CPA15Common Planning IssuesDifficulty obtaining populations.No query or support provided to prove population completeness.Unofficial withdrawals. All cash draws made in year, rather than only draws on current awards.

14John Keel, CPAPreparing for an auditJohn Keel, CPAPreparing for an AuditEstablish and update written policies or proceduresMaintain evidence of reviews or approvalsMonitor critical activities, including student determinations and adjustments15John Keel, CPAfieldworkJohn Keel, CPAInternal Controls Over ComplianceAuditors gain an understanding of internal controls related to SFA cluster.Perform assessment of controls based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model.Test internal controls that are key to SFA processes. Test information technology general controls.16John Keel, CPAInformation Technology General ControlsInformation Security PoliciesUser AccessPasswords.High-profile Roles.Periodic Review of User Access.Change ManagementAuthorization and Testing.Migration of Changes.Configuration and Emergency Changes.Operations

17John Keel, CPACommon General Control IssuesLack of documentation of development testing and insufficient approval of system changes.User AccessMore access than necessary.Terminated or transferred employees.Shared generic accounts.No review of user access.Segregation of DutiesProgrammers with access to production.Users who can initiate, submit, and approve critical transactions.18John Keel, CPACompliance TestingTypically done on a sample basis.If exceptions, auditors may attempt to quantify the exceptions for the entire population.For some compliance areas, auditors will perform data analysis to review the entire population.19John Keel, CPAAudit ProceduresOffice of Management and Budget Circular A-133 Compliance SupplementDetails requirements for each federal program.Guides the audit procedures and requirements tested for each program.Catalog of Federal Domestic Assistance (CFDA) number identifies each federal program.2013 Supplement was published in July 2013.

20John Keel, CPACompliance Sample SizesAmerican Institute of Certified Public Accountants (AICPA) Sample Size Guidance.Based on inherent risk and control risk for each compliance area.Sample sizes are increased when control weaknesses and/or compliance exceptions are identified.Sample sizes are typically 25, 40, or 60. 21John Keel, CPAKey Compliance Requirements13 primary compliance requirements.Special Tests and Provisions.Additional areas that can be added by the federal awarding agency for each program or cluster.Limited vs. Full Scope Higher Education Institutions.Not all compliance areas are considered direct and material based on quantitative and/or qualitative considerations. Therefore, some compliance areas may not be included in our audit work.22John Keel, CPACash ManagementObjective: Determine whether, for advance payments, the recipient has minimized the time between transfer of funds and their disbursement.Test that disbursements were made within three business days of receipt of funds.Determine whether the higher education institution earned interest on federal funds.23John Keel, CPAEligibilityObjectives:Determine whether eligibility determinations were made, individual participants were determined to be eligible, and only eligible individuals participated.Determine whether amounts provided to participants were calculated according to requirements.

24John Keel, CPAEligibilityStudent met general SFA requirements.Enrolled in eligible, degree seeking program.U.S. citizen or national.Maintained satisfactory academic progress.Student met program specific requirements.For example, enrolled at least half-time for Direct Loans.25John Keel, CPAEligibilityStudent had financial need.Cost of attendance correctly calculated, based on actual or expected enrollment.Correct expected family contribution.Awards made within annual and aggregate limits.Awards did not exceed student need.26John Keel, CPACommon Eligibility IssuesCost of Attendance CalculationsErrors in manual calculations or adjustments.Institution does not have less than full-time budgets.Institution does not budget based on actual or expected enrollment. Documentation of professional judgment.Satisfactory Academic Progress (SAP)No documentation of appeal process.Process to assess SAP is not consistent with policy.Assistance awarded to students who did not maintain SAP.Data Analysis resultsGrad students receiving subsidized loansIncorrect awards for Pell, FSEOG, etc.27John Keel, CPAReportingObjective: Determine whether required reports include all activity, are supported by accounting records, and are fairly presented in accordance with requirements. 28John Keel, CPAReportingCommon Origination and Disbursement (COD) SystemTest origination and disbursement records to determine accuracy and completeness.Test timeliness of reporting.Key items include disbursement date and disbursement amount.Fiscal Operations Report and Application to Participate (FISAP)Test that FISAP amounts are accurately supported.29John Keel, CPACommon Reporting IssuesPell or Direct Loan disbursement records not submitted to the COD system in timely manner.Incorrect disbursement amount or date reported.Amounts reported on FISAP do not match supporting documentation.30John Keel, CPAVerificationObjective: Determine whether the higher education institution established verification policies and verified all required information for selected students.31John Keel, CPAVerificationReview verification policies to ensure they contain all required elements.Test that the higher education institution:Verified information for selected students.Obtained acceptable documentation.Matched information to the student application.Submitted corrections when required.Adjusted awards based on corrections, if applicable.32John Keel, CPACommon Verification IssuesVerification policies do not meet federal requirements.Incorrect verification of information due to manual verification processHousehold sizeNumber in collegeIncome tax paidLack of follow-up on required corrections (new Institutional Student Information Record, award adjustments)33John Keel, CPAChanges in Verification2012-2013 U.S. Department of Education Changes in Verification$25 threshold for correctionsNo more 30% requirementFederal Register

Limited Scope Compliance Area in Fiscal Year 2013

34John Keel, CPADisbursementsObjective: Determine whether disbursements to students were made within required time frames and whether required documents and approvals were obtained before disbursing SFA funds.35John Keel, CPADisbursementsTest that disbursements were not made more than 10 days before start of semester.Test that all eligibility requirements were met before disbursements.Test that disbursement notifications for loans and certain grants were sent within the required time frames, as required.36John Keel, CPAReturn of Title IV FundsObjective: Determine whether the higher education institution is making returns in the proper amount and in a timely manner and is applying the returns to federal programs as required.

37John Keel, CPAReturn of Title IV FundsTest that return calculations or determinations were accurate for students who withdrew, dropped out, or never began attendance.For students who received all Fs, determine whether returns were made, if applicable.Test that returns were made in a timely manner.

38John Keel, CPACommon Return of Title IV Funds IssuesPayment period determined incorrectly.Insufficient process for determining whether student ever attended during a term.All F report not capturing a combination of Fs, withdrawals, etc.Insufficient documentation of attendanceUsing wrong date for calculationDeterminations of withdrawal date for unofficial withdrawals not done in a timely manner.

39John Keel, CPAEnrollment ReportingObjective: Determine whether the higher education institution is notifying the U.S. Department of Education and the National Student Loan Data System (NSLDS) of changes in student status in a timely and accurate manner.

40John Keel, CPAEnrollment ReportingTest that student status changes were accurately reported to NSLDS within the required time frames. Higher education institution is responsible for timeliness even if it uses the National Student Clearinghouse for submissions.

41John Keel, CPACommon Enrollment Reporting IssuesFailure to report status changes to NSLDS.Incorrectly reporting graduated students as enrolled or withdrawn.For unofficially withdrawn students, not reporting students as withdrawn based on determined withdrawal date.42John Keel, CPAInstitutional EligibilityObjective: Determine whether the higher education institution meets applicable institutional eligibility requirements.

43John Keel, CPAInstitutional EligibilityTest that higher education institution:Maintained and met required ratios for correspondence courses, incarcerated students, and ability-to-benefit students.Did not pay commission or bonuses.Established reasonable SAP standards.Received approval for additional locations on Eligibility and Certification Approval Report (ECAR).

44John Keel, CPACommon Institutional Eligibility IssuesRatio calculations are not maintained, or there is no process to calculate the ratios. 45John Keel, CPAOther Compliance AreasActivities Allowed or Unallowed.Matching, Level of Effort, Earmarking.Period of Availability.Program Income.Separate Funds.Student Loan Repayments.Federal Work Study.Written Arrangements.

46John Keel, CPAFindings and management responsesJohn Keel, CPAPotential Finding ClassificationsInternal Controls Over Compliance.Significant Deficiency.Material Weakness.Compliance.Non-Compliance.Material Non-Compliance.47John Keel, CPA52Management ResponsesWritten findings sent to higher education institutions.Generally have 10 working days for responses.Responses include corrective action plan, responsible person and implementation date.48John Keel, CPAReportStatewide Single Audit report.Separate SAO report on SFA Cluster findings.Fiscal year 2012 Reports:http://www.sao.state.tx.us/reports/main/13-322.pdfhttp://www.sao.state.tx.us/reports/main/13-019.pdf

49John Keel, CPAAvailable ResourcesOMB Circular A-1332013 Compliance Supplement, Parts 3 and 5http://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2013 Catalog of Federal Domestic Assistancehttps://www.cfda.gov

Code of Federal RegulationsTitle 34- EducationTitle 42- Public Health50John Keel, CPAQuestions?John Keel, CPAContact InformationEllie Thedford(512) 936-9305ethedford@sao.state.tx.us

Parsons Townsend(512) 936-9734ptownsend@sao.state.tx.us John Keel, CPA