Single Audits:

Improvements Needed in Selected Agencies' Oversight of Federal Awards

GAO-17-159: Published: Feb 16, 2017. Publicly Released: Feb 16, 2017.

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What GAO Found

Federal agencies have oversight responsibilities for the funds that they award to nonfederal entities and can assign these responsibilities to their subagencies (i.e., operating units or divisions). Nonfederal entities are required to undergo a single audit if their expenditures of federal awards in a fiscal year exceed a certain threshold. A single audit is an audit of the award recipient's expenditure of federal awards and of its financial statements and can identify deficiencies in the award recipient's compliance with the provisions of laws, regulations, contracts, or grant agreements and in its financial management and internal control systems. Correcting such deficiencies can help reasonably assure the effective use of federal funds and reduce federal improper payments.

Of the five agencies in GAO's study—the Departments of Agriculture, Education, Health and Human Services (HHS), Housing and Urban Development (HUD), and Transportation—some of the agencies' subagencies that GAO reviewed did not effectively design policies and procedures to reasonably assure the timely submission of single audit reports by award recipients. The Office of Management and Budget's (OMB) guidance requires that federal awarding agencies ensure that award recipients submit single audit reports within certain time frames. This can help assure that single audit findings are timely corrected.

Most of the selected subagencies in GAO's review did not effectively design policies and procedures to reasonably assure that they issued timely management decisions containing the information required by OMB guidance. This guidance requires agencies to evaluate each award recipient's audit findings and corrective action plans and issue a management decision within 6 months of receipt of the single audit report as to the actions award recipients must take to correct each single audit finding. Such decisions may add clarity about the agency's position on the single audit finding and the corrective action.

Assessment of Selected Subagencies' Policies and Procedures for Single Audit Oversight

Assessment of Selected Subagencies' Policies and Procedures for Single Audit Oversight

Only the two selected subagencies in Education had policies and procedures for using risk-based approaches to manage high-risk and recurring single audit findings. High-risk single audit findings may be seriously detrimental to federal programs and could result in improper payments. Recurring single audit findings have persisted for more than one audit period and may need more attention or resources to correct. With over 30,000 single audit reports submitted for fiscal year 2015 and constraints in resources for conducting federal oversight, managing single audit findings using a risk-based approach can assist in identifying and prioritizing problem areas.

Why GAO Did This Study

In fiscal year 2015, federal agencies outlaid over $600 billion in federal awards to state and local governments, according to OMB. The Single Audit Act of 1984, as amended, requires that federal agencies oversee their awards to nonfederal entities. OMB Circular No. A-133 provided guidance for implementing the act during GAO's audit.

GAO was asked to examine federal agency oversight of single audits. This report examines whether selected agencies effectively designed policies and procedures to reasonably assure that (1) recipients submit timely single audit reports and (2) award recipients take action on single audit findings by issuing timely management decisions. GAO also examined whether selected agencies had policies and procedures for managing high-risk and recurring audit findings. GAO selected the five agencies with the largest dollar amounts of reported outlays for grants to state and local governments in fiscal year 2013. For each agency, GAO reviewed its two subagencies accounting for over 80 percent of outlays, reviewed written policies and procedures, and interviewed the respective officials.

What GAO Recommends

GAO is making 21 recommendations. One Agriculture subagency agreed with the recommendations and the other did not comment. HHS and Transportation concurred. HUD commented that one subagency had taken actions to address the recommendations, while the other subagency disagreed with the recommendations directed to it. GAO believes that the recommendations are valid as discussed in the report.

For more information, contact Beryl H. Davis at (202) 512-2623 or davisbh@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Priority recommendation

    Comments: The Secretary for the Department of Agriculture (Agriculture) responded in its statement of action letter dated October 4, 2017, as it relates to our recommendation for Agriculture's Food and Nutrition Service (FNS). The statement of action stated that (1) FNS conducted audit management training in all seven FNS regional offices by July 2017; (2) FNS will conduct an examination of the current agency audit manual that is used by all FNS National office and Regional office staff who have responsibility for working on audits; (3) FNS will update the audit manual as needed to ensure all award recipients required to submit single audit reports do so in accordance with the Office of Management and Budget (OMB) guidance; and (4) FNS will revise and re-issue the audit manual within one year of this statement of action letter. On January 26, 2018, we received an updated response from FNS that the evaluation of the agency's audit manual is underway and updates are being made as needed to ensure single audits are managed in accordance with OMB's guidance. Further, FNS stated that it is on track to revise and re-issue the audit manual within one year of the signed Statement of Action, which will coincide with issuing revised guidance at the beginning of fiscal year 2019. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Food, Nutrition, and Consumer Services to design policies and procedures to reasonably assure that all award recipients required to submit single audit reports do so in accordance with OMB guidance.

    Agency Affected: Department of Agriculture

  2. Status: Open

    Priority recommendation

    Comments: The Secretary for the Department of Agriculture (Agriculture) responded in its statement of action letter dated October 4, 2017, as it relates to Agriculture's Food and Nutrition Service (FNS). The statement of action stated that (1) FNS conducted audit management training in all seven FNS regional offices by July 2017; (2) FNS will conduct an examination of the current agency audit manual that is used by all FNS National office and Regional office staff who have responsibility for working on audits; (3) FNS will update the audit manual as needed to ensure that management decisions contain the required elements and are issued timely in accordance with the Office of Management and Budget (OMB) guidance; and (4) FNS will revise and re-issue the audit manual within one year of this statement of action letter. On January 26, 2018, we received an updated response from FNS that the evaluation of the agency's audit manual is underway and updates are being made as needed to ensure single audits are managed in accordance with OMB's guidance. Further, FNS stated that it is on track to revise and re-issue the audit manual within one year of the signed Statement of Action, which will coincide with issuing revised guidance at the beginning of fiscal year 2019. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Food, Nutrition, and Consumer Services to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Agriculture

  3. Status: Open

    Comments: The Secretary for the Department of Agriculture (Agriculture) responded in its statement of action letter dated October 4, 2017, as it relates to Agriculture's Food and Nutrition Service (FNS). The statement of action stated that (1) FNS conducted audit management training in all seven FNS regional offices by July 2017; (2) FNS will conduct an examination of the current agency audit manual that is used by all FNS National office and Regional office staff who have responsibility for working on audits; (3) in consultation with the seven FNS regional offices that are responsible for the resolution of single audit findings, if feasible, FNS will incorporate general guidance for managing high-risk and recurring single audit findings into the agency audit manual; and (4) FNS will revise and re-issue the audit manual within one year of this statement of action letter. On January 26, 2018, we received an updated response from FNS that the evaluation of the agency's audit manual is underway and updates are being made as needed to ensure single audits are managed in accordance with OMB's guidance. Further, FNS stated that it is on track to revise and re-issue the audit manual within one year of the signed Statement of Action, which will coincide with issuing revised guidance at the beginning of fiscal year 2019. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Food, Nutrition, and Consumer Services to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Agriculture

  4. Status: Open

    Priority recommendation

    Comments: On January 30, 2018, Agriculture's Internal Control and Initiatives Staff and Financial Management Division met with Departmental Office of the Chief Financial Officer (OCFO) to discuss the Single Audit process and this GAO recommendation. As of April 4, 2018, the OCFO was still in the process of drafting guidance regarding Single Audits. RD staff are currently working with the National Financial and Accounting Operations Center to address the Single Audit recommendations (while awaiting the final guidance from the OCFO) to collaborate on the Single Audit process that Agriculture's RD says will address and instruct the Program Areas within RD to effectively and efficiently process Single Audits to ensure that all their award recipients required to submit a Single Audit do so in accordance with the Office of Management and Budget guidance. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Rural Development to design policies and procedures to reasonably assure that all award recipients required to submit single audit reports do so in accordance with OMB guidance.

    Agency Affected: Department of Agriculture

  5. Status: Open

    Priority recommendation

    Comments: On January 30, 2018, Agriculture's Internal Control and Initiatives Staff and Financial Management Division met with Departmental Office of the Chief Financial Officer (OCFO) to discuss the Single Audit process and this GAO recommendation. As of April 4, 2018, the OCFO was still in the process of drafting guidance regarding Single Audits. RD staff are currently working with the National Financial and Accounting Operations Center to address the Single Audit recommendations (while awaiting the final guidance from the OCFO) to collaborate on the Single Audit process that Agriculture's RD says will address and instruct the Program Areas within RD to effectively and efficiently process Single Audits to ensure that management decisions letters contain the required elements and are issued timely in accordance with the Office of Management and Budget guidance. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Rural Development to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Agriculture

  6. Status: Open

    Comments: On January 30, 2018, Agriculture's Internal Control and Initiatives Staff and Financial Management Division met with Departmental Office of the Chief Financial Officer (OCFO) to discuss the Single Audit process and this GAO recommendation. As of April 4, 2018, the OCFO was still in the process of drafting guidance regarding Single Audits. RD staff are currently working with the National Financial and Accounting Operations Center to address the Single Audit recommendations (while awaiting the final guidance from the OCFO) to collaborate on the Single Audit process that Agriculture's RD says will address and instruct the Program Areas within RD to effectively and efficiently process Single Audits to identify/manage high-risk and recurring Single Audit findings using a risk-based approach. We will assess these efforts once completed.

    Recommendation: The Secretary of Agriculture should direct the Under Secretary for Rural Development to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Agriculture

  7. Status: Closed - Implemented

    Comments: The Department of Health and Human Services (HHS) concurred with our recommendation to the Assistant Secretary for Financial Resources (ASFR). We reviewed ASFR's policies and procedures which show that ASFR has established a process to identify grantees that are delinquent in the report submission and to notify the appropriate HHS agencies obligated to resolve the delinquency. ASFR stated that it has performed this process for fiscal years 2014 through 2016 and is continuing the delinquent audit review process for fiscal year 2017 and the future.

    Recommendation: The Secretary of Health and Human Services should direct the Assistant Secretary for Financial Resources to design policies and procedures to reasonably assure that all award recipients required to submit single audit reports do so in accordance with OMB guidance.

    Agency Affected: Department of Health and Human Services

  8. Status: Open

    Priority recommendation

    Comments: The Department of Health and Human Services (HHS) concurred with this recommendation to the Assistant Secretary for Financial Resources (ASFR). As of August 2018, HHS stated that ASFR is working with HHS's Single Audit Resolution Workgroup (SARW) to develop the following documents: (HHS) Single Audit Resolution Standard Operating Procedure (SOP) that will emphasize the required elements and 6-month timeline for management decision letters (MDL) and (2) standardized MDL template that will also include the required elements. HHS officials said the SOP and MDL template will be available in fiscal year 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Health and Human Services should direct the Assistant Secretary for Financial Resources to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Health and Human Services

  9. Status: Open

    Comments: The Department of Health and Human Services (HHS) concurred with this recommendation to the Assistant Secretary for Financial Resources (ASFR). As of August 2018, ASFR is working to automate the assignment and tracking of single audit findings across HHS starting in October 2018. As part of this effort, ASFR has worked with HHS' Single Audit Resolution Workgroup (SARW) to develop criteria for flagging high risk and recurring single audit findings and high risk single audit reports. The new automated assignment and tracking system will flag single audit findings associated with a Modified Opinion, Material Weakness, and/or multiple year findings. It will also flag single audit reports that were submitted late, that have "going concern" issues, and/or that have a Modified financial statement opinion. To complement this effort, ASFR is working with the SARW to develop a HHS Single Audit Resolution Standard Operating Procedure (SOP) that will include information on how audit resolution officials can focus and tailor their audit resolution activities based on the risk level of audit findings and reports. ASFR will finalize the SOP in FY 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Health and Human Services should direct the Assistant Secretary for Financial Resources to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Health and Human Services

  10. Status: Open

    Priority recommendation

    Comments: The Department of Health and Human Services (HHS) concurred with this recommendation to the Centers for Medicare and Medicaid Services (CMS). HHS stated that CMS has developed a Standard Operating Procedure (SOP) based on the Grants Policy Administration Manual (GPAM) issued December 31, 2015. The SOP is currently under review and will be implemented after approval and signature by CMS leadership. The SOP includes provisions for following up with entities that have delinquent audits. We will assess these efforts once completed.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Centers for Medicare and Medicaid Services to revise its policies and procedures to take action to obtain single audit reports when award recipients did not submit reports within the required time frames.

    Agency Affected: Department of Health and Human Services

  11. Status: Open

    Priority recommendation

    Comments: The Department of Health and Human Services (HHS) concurred with this recommendation to the Centers for Medicare and Medicaid Services (CMS). HHS stated that it has developed a Standard Operating Procedure (SOP) based on the Grants Policy Administration Manual (GPAM) issued on December 31, 2015, and the draft Management Decision Letter (MDL) HHS guidelines document. In April 2017, HHS informed us that the SOP is under review and will be implemented after approval and signature by CMS leadership. The SOP includes management decision letter elements and the timely issuance of MDLs. We will assess these efforts once completed.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Centers for Medicare and Medicaid Services to revise its policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Health and Human Services

  12. Status: Open

    Comments: The Department of Health and Human Services (HHS) concurred with this recommendation to the Centers for Medicare and Medicaid Services. As of August 2018, HHS stated that ASFR is working to automate the assignment and tracking of single audit findings across HHS starting in October 2018. As part of this effort, ASFR has worked with HHS' Single Audit Resolution Workgroup (SARW) to develop criteria for flagging high risk and recurring single audit findings and high risk single audit reports. The new automated assignment and tracking system will flag single audit findings associated with a Modified Opinion, Material Weakness, and/or multiple year findings. It will also flag single audit reports that were submitted late, that have "going concern" issues, and/or that have a Modified financial statement opinion. To complement this effort, ASFR is working with the SARW to develop a HHS Single Audit Resolution Standard Operating Procedure (SOP) that will include information on how audit resolution officials can focus and tailor their audit resolution activities based on the risk level of audit findings and reports. ASFR will finalize the SOP in fiscal year 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Centers for Medicare and Medicaid Services to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Health and Human Services

  13. Status: Closed - Implemented

    Priority recommendation

    Comments: The GAO recommendation was for the Department of Housing and Urban Development's (HUD) Office of Community Planning and Development (CPD) to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with the Office of Management and Budget (OMB) guidance. CPD did not agree with our recommendation and, consequently, did not revise its policies and procedures, which was the intent of the GAO recommendation. Nevertheless, in fiscal year 2017, CPD provided training on writing management decisions and issued a reminder memorandum to CPD staff to comply with Single Audit requirements, including management decision requirements, which are referenced in CPD's clarifying guidance dated September 9, 2013. This guidance was in effect at the time of our audit engagement. After further review of CPD's guidance, we believe the guidance dated September 9, 2013, is effectively designed to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance. Further, we believe that CPD's issuance of its reminder memorandum to CPD staff re-enforces CPD's existing policies and procedures that are specified in CPD's clarifying guidance. Therefore, we consider this recommendation closed.

    Recommendation: The Secretary of Housing and Urban Development should direct the Principal Deputy Assistant Secretary for the Office of Community Planning and Development to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Housing and Urban Development

  14. Status: Open

    Comments: In March 2018, the Department of Housing and Urban Development's (HUD) Office of Community Planning and Development (CPD) stated that it did not agree with GAO's emphasis on high risk/recurring single audit findings. Nevertheless, HUD's CPD stated that it is currently exploring a revision to its risk analysis process that is rooted in the Single Audits framework and determining the types of data analyses that can be run to identify high risk and recurring single audit findings. Further, HUD's CPD stated that if it is able to run such reports for its programs, it would use these data as a basis for revising its monitoring policies and procedures in ways that focus on, and are driven by, single audit results. Given the number of CPD's programs, grantees, and single audits, and the resources needed to update/redesign IT systems for this purpose, CPD is working to have a revised Risk Analysis framework in place for fiscal year 2020. We will assess these efforts once completed.

    Recommendation: The Secretary of Housing and Urban Development should direct the Principal Deputy Assistant Secretary for the Office of Community Planning and Development to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Housing and Urban Development

  15. Status: Closed - Implemented

    Priority recommendation

    Comments: The Department of Housing and Urban Development's (HUD) Office of Public and Indian Housing (PIH) updated its Independent Public Accountant Audit Findings Review Standard (dated September 2017), which PIH developed to establish requirements for management decision letter issuance and closure of findings. We reviewed this standard and verified that it contains the required elements in accordance with the Office of Management and Budget guidance relating to management decisions. In addition, we verified that PIH has updated this standard to require periodic reviews of audit findings tracking sheets to ensure staff are complying with the standard and are issuing management decisions timely. Therefore, we believe PIH's actions addresses this recommendation.

    Recommendation: The Secretary of Housing and Urban Development should direct the Principal Deputy Assistant Secretary for the Office of Public and Indian Housing to revise policies to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Housing and Urban Development

  16. Status: Open

    Comments: The Department of Housing and Urban Development's (HUD) Office of Public and Indian Housing (PIH) agreed with this recommendation. On May 7, 2018, PIH stated that it has implemented a Risk Based Approach Tool designed to identify and manage high-risk and recurring single audit findings since GAO issued its report in February 2017. The Risk Based Approach tool is used to track and focus on audit findings reported as material weaknesses or significant deficiencies and is designed to determine the resources needed and available to assist in mitigating the audit findings. Currently, PIH is in the process of drafting a Risk Alert document to present to PIH's Risk Committee. The document provides detailed background on HUD's Office of Inspector General findings that have been identified as a top risk, lists the audits where those findings have been reported, the status of the response to the findings, and provides a risk ranking score and recommendations to mitigate the findings. The planned outcome of this report is for the Risk Committee to understand the importance of allocating required resources to mitigate the risk as soon as possible when it is feasible. HUD's PIH plans to finalize the related policies and procedures by September 30, 2019. We will assess these efforts once completed.

    Recommendation: The Secretary of Housing and Urban Development should direct the Principal Deputy Assistant Secretary for the Office of Public and Indian Housing to design and implement policies and procedures for identifying and managing high-risk and recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Housing and Urban Development

  17. Status: Open

    Priority recommendation

    Comments: The Department of Transportation (DOT) agreed with this recommendation. On February 27, 2018, DOT issued a memorandum instructing the Federal Highway Administration to design, revise, and implement procedures to comply with federal grant and financial management requirements no later than June 30, 2018. However, the June 30th deadline is for the agencies to update their policies and procedures and to submit them to the Office of the Secretary for review and approval. DOT is working to update and implement its official guidance by September 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Federal Highway Administration to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Transportation

  18. Status: Open

    Comments: The Department of Transportation (DOT) agreed with this recommendation. On February 27, 2018, DOT issued a memorandum instructing the Federal Highway Administration to design, revise, and implement procedures to comply with federal grant and financial management requirements no later than June 30, 2018. However, the June 30th deadline is for the agencies to update their policies and procedures and to submit them to the Office of the Secretary for review and approval. DOT is working to update and implement its official guidance by September 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Federal Highway Administration to design and implement policies and procedures for identifying and managing recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Transportation

  19. Status: Open

    Priority recommendation

    Comments: The Department of Transportation (DOT) agreed with this recommendation. On February 27, 2018, DOT issued a memorandum instructing the Federal Transit Administration to design, revise, and implement procedures to comply with federal grant and financial management requirements no later than June 30, 2018. However, the June 30th deadline is for the agencies to update their policies and procedures and to submit them to the Office of the Secretary for review and approval. DOT is working to update and implement its official guidance by September 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Federal Transit Administration to design policies and procedures to reasonably assure that all award recipients required to submit single audit reports do so in accordance with OMB guidance.

    Agency Affected: Department of Transportation

  20. Status: Open

    Priority recommendation

    Comments: The Department of Transportation (DOT) agreed with our recommendations. On February 27, 2018, DOT issued a memorandum instructing the Federal Transit Administration to design, revise, and implement procedures to comply with federal grant and financial management requirements no later than June 30, 2018. However, the June 30th deadline is for the agencies to update their policies and procedures and to submit them to the Office of the Secretary for review and approval. DOT is working to update and implement its official guidance by September 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Federal Transit Administration to revise policies and procedures to reasonably assure that management decisions contain the required elements and are issued timely in accordance with OMB guidance.

    Agency Affected: Department of Transportation

  21. Status: Open

    Comments: The Department of Transportation (DOT) agreed with this recommendation. On February 27, 2018, DOT issued a memorandum instructing the Federal Transit Administration to design, revise, and implement procedures to comply with federal grant and financial management requirements no later than June 30, 2018. However, the June 30th deadline is for the agencies to update their policies and procedures and to submit them to the Office of the Secretary for review and approval. DOT is working to update and implement its official guidance by September 2018. We will assess these efforts once completed.

    Recommendation: The Secretary of Transportation should direct the Administrator of the Federal Transit Administration to design and implement policies and procedures for identifying and managing recurring single audit findings using a risk-based approach.

    Agency Affected: Department of Transportation

 

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