Single Audit: Refinements Can Improve Usefulness

Highlights

Pursuant to a congressional request, GAO reviewed implementation of the Single Audit Act of 1984, focusing on: (1) its influence on state and local government financial management practices; (2) the single audit process and the issues that limit the usefulness of single audit reports; and (3) workable solutions to improve the single audit process.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
In order to exempt from audit those organizations that receive comparatively small amounts of federal assistance, Congress should amend the Single Audit Act to raise the thresholds that trigger audit requirements. Specifically: (1) the threshold which requires entities to arrange for audits of federal financial assistance should be raised from $25,000 to $100,000; (2) the threshold which requires entities to arrange for single audits should be raised from $100,00 to $300,000; and (3) OMB should be required to review the thresholds every 2 years and adjust them as necessary.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments establish a $300,000 threshold and require OMB to review and, if necessary, adjust the threshold every 2 years.
Congress should amend the Single Audit Act to require OMB to establish higher major program dollar thresholds and to adjust them as necessary.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments require OMB to develop a risk-based approach to major programs and raise the dollar criteria for determining the number of major programs in organizations that receive more than $10 billion in federal funds.
Congress should amend the Single Audit Act to require OMB to annually publish a list of federal programs that must be selected for testing, based on the risks associated with the programs.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments require OMB to develop a risk-based approach to major programs and raise the dollar criteria for determining the number of major programs in organizations that receive more than $10 billion in federal funds. This provision is consistent with the intent of the recommendation.
To increase the usefulness of single audit reports, Congress should amend the Single Audit Act to require that single audit reports include a summary of the auditor's determinations regarding the entity's financial statements, internal controls, and compliance with laws and regulations.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments require auditors to include a summary of their determinations regarding the financial statements, internal controls, and compliance with laws and regulations.
To increase the usefulness of single audit reports, Congress should amend the Single Audit Act to require that single audit reports be transmitted to the appropriate federal agency, state or local government, and the Federal Audit Clearinghouse in the Bureau of the Census no later than 9 months after the end of the fiscal year under audit, or such shorter time specified by OMB.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments generally require entities to submit their reports within 9 months.
To increase the usefulness of single audit reports, Congress should amend the Single Audit Act to require that entities receiving federal financial assistance equal to or in excess of $50 million in a fiscal year publicly report the extent to which the entity has in place internal controls over federal financial assistance sufficient to safeguard assets, prepare accurate financial reports, comply with federal laws and regulations, and monitor subrecipients.	Closed – Not Implemented	Identical bills to amend the Single Audit Act were introduced in the Senate (S.1579) and the House (H.R. 3184) and voted out by the respective committees. The committees are finalizing the committee reports so that the bills can be sent to the floor for a vote. It is not known whether or when the votes will occur. The bills do not contain provisions concerning entity management internal control reporting.
To increase the usefulness of single audit reports, Congress should amend the Single Audit Act to require that auditors conducting single audits of such entities to attest to the fairness of a management representation on the status of internal controls over federal financial assistance, limited to those programs in which the auditors tested controls.	Closed – Not Implemented	Identical bills to amend the Single Audit Act were introduced in the Senate (S.1579) and the House (H.R.3184) and voted out by the respective committees. The committees are finalizing the committee reports so that the bills can be sent to the floor for a vote. It is not known whether or when the votes will occur. The bills do not contain provisions concerning entity management internal control reporting or auditor attestation to the management reporting.
To increase the usefulness of single audit reports, Congress should amend the Single Audit Act to require that single audit reports: (1) be addressed to the cognizant or other agency designated by OMB in addition to the audited entity; and (2) state the auditor's understanding that the federal government intends to rely on the reports.	Closed – Not Implemented	Identical bills to amend the Single Audit Act were introduced in the Senate (S.1579) and the House (H.R.3184) and voted out by the respective committees. The committees finalizing the committee reports so that the bills can be sent to the floor for a vote. It is not known whether or when the votes will occur. The bills do not include provisions requiring reports to be addressed to a federal agency or state that the federal government intends to rely on the reports.
Congress should amend the Single Audit Act to relieve auditors from having to report inconsequential findings.	Closed – Implemented	The Single Audit Act Amendments were enacted in July 1996. The amendments repealed requirements to report inconsequential findings.

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Recommendations for Executive Action

Agency Affected	Recommendation	Status
Office of Management and Budget	OMB should update the Compliance Supplement to Circular A-128 at least every 2 years.	Closed – Implemented OMB issued a new Compliance Supplement in 1997 and plans to add additional material to the supplement in 1998. Also, agencies are now required to annually inform OMB of any changes needed to the supplement.
Office of Management and Budget	OMB should expand the Compliance Supplement to Circular A-128 to include all financial assistance programs identified by OMB as high-risk.	Closed – Not Implemented OMB considers program size and agency recommendations in deciding which programs to include in the supplement.
Office of Management and Budget	OMB should describe the inherent risk for each program included in the Compliance Supplement to Circular A-128.	Closed – Implemented OMB greatly expanded the description of each program in the new Compliance Supplement to include program objectives and procedures as well as relevant compliance requirements.
Office of Management and Budget	To promote the use of single audit reports in planning future audit work, OMB should, through the President's Council on Integrity and Efficiency, develop guidelines for using summary report information from a central single audit clearinghouse to identify follow-on audits and reviewing single audit reports.	Closed – Implemented OMB now requires audited entities to submit a data collection form with their single audit reports. The form includes data fields which could be used to provide a foundation for follow-on audits.
Department of Commerce	The Secretary of Commerce should ensure that the Federal Audit Clearinghouse in the Bureau of the Census expands its single audit database to include information on: (1) the Schedules of Federal Financial Assistance; (2) the type of auditors' opinions on the financial statements and the Schedules of Federal Financial Assistance; (3) the results of any internal control representations by management and any attestation by auditors on those representations; (4) reportable conditions and material weaknesses; and (5) other significant matters.	Closed – Implemented OMB requires entities that receive single audits to submit a data collection form that includes the type of information spelled out in the GAO recommendation. The Clearinghouse enters information from the form into an automated database.
Office of Management and Budget	To ensure that consistent financial information is available about the federal programs that state and local governments operate, OMB should prescribe the form and content of the Schedules of Federal Financial Assistance in consultation with stakeholders.	Closed – Implemented OMB issued guidance that established the minimum content for the schedules of expenditures of federal awards, including a list of programs by federal agency, the total awards expended for each program, and a description of the accounting policies used in preparing the schedules.

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Topics

Auditing and Financial Management

Auditing proceduresAuditing standardsFederal aid to localitiesFederal aid to statesFinancial management systemsIntergovernmental fiscal relationsInternal controlsLocal governmentsReporting requirementsState governments