State and local governments and nonprofits that receive federal money often must complete Single Audits, also known as OMB A-133 audits. These ensure monies are spent properly according to the different program requirements, and that the relevant organizations only have to go through one consistent audit event.

However, the Office of Management and Budget (OMB) has proposed changes to the audit structure that could have direct and indirect impacts, including decreasing the number of organizations required to undertake a Single Audit.

“A lot of organizations may say, ‘this is great, I don’t have to pay for a Single Audit anymore,’” says Daniel L. Wander, CPA, director of assurance services at SS&G. “But if this does go through, they may need to react to it fairly early to determine what their funders are going to require in terms of any changes or additional procedures.”

Smart Business spoke with Wander about the proposed changes and their impact.

What are the proposed changes?

As of February, the OMB recommended that the annual spending threshold for federal funds that require an organization to have a Single Audit be raised from $500,000 to $750,000. This is partly because of inflation — the last threshold increase was in 2003 — and partly to increase efficiency. The American Institute of CPAs indicated last year that entities receiving less than $1 million in federal funds made up about 24 percent of the total Single Audits but only covered 1 percent of total expenditures. The audits for organizations receiving more than $3 million in federal funds, however, accounted for about 97 percent of total federal expenditures.

Once an organization determines it must undertake a Single Audit, major programs over a certain threshold undergo a compliance audit, at least on some kind of rotational basis, where the auditor renders an opinion. The OMB proposal also raises this threshold from $300,000 to $500,000.

Another change is the coverage rules for high risk and low risk auditees. Coverage means program dollars covered in the compliance audit as a major program. OMB is talking about reducing the coverage rules to 40 percent for high risk and 20 percent for low risk auditees, from 50 percent and 25 percent, respectively.

Finally, OMB wants to streamline the compliance testing areas from 14 to six, focusing on areas where money is going to be misspent, and putting a number of cost and administrative principle guides into one central document.

What’s the timeline on these changes?

The changes are still in proposal form, and the comment period has been extended to June 2. Therefore, the earliest the changes would be in effect would probably be beginning July 1, 2014, giving people a chance to plan.

What might be the impact of the changes?

The direct effect will be fewer entities required to have Single Audits. However, they will still need to follow federal rules and regulations, and could be subject to audits by either state or federal organizations that want to come in specifically.

A fallout may be more state or local entity involvement through audits or additional requirements in order to fulfill state or local monitoring responsibilities. Currently, these organizations get automatic easy oversight from receiving Single Audits each year.

What are some next steps for nonprofits?

First, if nonprofits have anything specific to say, use the extended comment period. Then, reach out at least to your major funders, usually state, local or county agencies, and open a dialog so there are no surprises. How do the funders think they will react? Will they be putting in additional requirements as part of their oversight?

A nonprofit’s costs may go down but it may need to reallocate. If a nonprofit is subject to a Single Audit, the cost can come from the federal portion of your budget. If somebody else is imposing certain audit costs, you’ll need to talk to that organization about where that’s going to be allowable. If Ohio is requiring something additional, it ought to be paid with state money.

Hopefully, no one begins to believe auditors won’t be looking at this anymore. You still have to comply with the federal regulations, and there’s a chance someone will look at your spending at some point.

Daniel L. Wander, CPA, is a director, Assurance Services, at SS&G. Reach him at (800) 869-1834 or DWander@SSandG.com.

 

Save the Date: You have until June 2, to provide comments on the proposed revisions to OMB Circular A-133 and related grant reforms. The OMB must receive comments electronically.

 

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