Financial Manual for Grants & Contracts Chapter 20: Single Audit

This chapter compiles the applicable federal, state and agency audit requirements for entities that receive funds administered by the Agency.

Record retention and access requirements are provided in Appendix K to this manual. All financial and programmatic records, supporting documents, statistical records, and other records pertaining to an award of federal or state funds must be retained and made available to authorized entities or their representatives in accordance with applicable administrative requirements.

The Single Audit reporting package must be submitted to the oversight entity within the earlier of 30 days after receipt of the auditor’s report(s) or nine months after the end of the audit period, unless a longer period is agreed to in advance by the oversight entity. However, for fiscal years beginning on or before June 30, 1998, the audit shall be completed and the reporting package shall be submitted within the earlier of 30 days after receipt of the auditor’s report(s), or 13 months after the end of the audit period.

At least one copy of the reporting package must be submitted to the entity that has oversight responsibility; however, additional copies may be required as necessary. The reporting package must include the elements described below.

• Financial Statements. The entity being audited must prepare financial statements that reflect its financial position, results of operations or changes in net assets, and where appropriate, cash flows for the fiscal year audited. When applicable, the financial statements must be prepared in accordance with Governmental Accounting Standards Board (GASB) Statement 34, and other relevant GASB Statements. The financial statements must be for the same organizational unit and fiscal year that is being audited. Organization-wide financial statements may also include departments, agencies, and other organization units that have separate audits and prepare separate financial statements.
• Schedule(s) of Expenditures of Federal and/or State Awards. The entity being audited must prepare a Schedule of Expenditures of Federal Awards and/or Schedule of Expenditures of State Awards for the period covered by its financial statements. The schedules may, but are not required to, include additional information requested by the awarding entities that make the schedules easier to use. At a minimum, the schedules must:
  • Show state awards expended separate from federal awards expended (even if the state funds are awarded within the federal funds as one program)
  • List individual federal and/or state programs by federal and/or state agency. For programs that are included in a cluster of programs, list individual programs within each cluster of programs
  • For awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. For Agency contracts, the identifying number is the Agency’s contract number
  • Provide total federal and/or state awards expended for each individual program, the program name, the program number if a number is used, Catalog of Federal Domestic
  • Assistance (CFDA) title and number (if used to identify the program), or other relevant identifier when the program or CFDA information is not available
  • Include notes describing the significant accounting policies used in preparing the schedule
  • To the extent practical, if the entity being audited serves as a pass-through entity, identify the total amount provided to subrecipients from each program
  • Include, in the schedule or as a note, the value of the federal and/or state awards expended in the form of non-cash assistance, the amount of insurance in effect during the year, and outstanding loans or loan guarantees at year-end
• Summary Schedule of Prior Audit Findings. The entity being audited must prepare a Summary Schedule of Prior Audit Findings showing the status of all audit findings included in the prior audit’s Schedule of Findings and Questioned Costs relative to federal and/or state awards. The schedule should include the reference numbers the auditor assigns to audit findings and the fiscal year in which the finding initially occurred. It must also include audit findings reported in the prior audit’s Summary Schedule of Prior Audit Findings except audit findings listed as corrected, or no longer valid or not warranting further action. Additionally:
  • When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.
  • When the audit findings were not corrected or were only partially corrected, the summary schedule must describe the planned corrective action and any partial corrective action taken.
  • When corrective action taken is significantly different from corrective action previously reported in a corrective action plan or in the management decision, the summary schedule must provide an explanation.
  • When the entity that is being audited believes the audit findings are no longer valid or do not warrant further action, the reasons for this position must be described in the summary schedule. Valid reasons are listed at OMB Circular A-133 §__.315(b)(4) and the Uniform Grant Management Standards (UGMS) Part IV §__.315(b)(4).
• Auditor’s Report. The audit report must state that the audit was conducted in accordance with OMB Circular A-133 and/or State of Texas Single Audit Circular, and it must include the following:
  • An opinion or disclaimer of opinion as to whether the financial statements are presented fairly in all material respects in conformity with Generally Accepted Accounting Principles (GAAP), and an opinion or disclaimer of opinion as to whether the Schedule(s) of Expenditures of Federal and/or State Awards are presented fairly in all material respects in relation to the financial statements as a whole
  • A report on internal controls related to the financial statements and major federal and/or state programs that describes the scope and results of testing of internal controls, and if applicable, refers to the Schedule of Findings and Questioned Costs
  • A report on compliance with laws, regulations, and the provisions of contracts or grant requirements which could have a material effect on the financial statements, including an opinion or disclaimer of opinion as to whether the entity that is being audited complied with laws, regulations, and the provisions of contracts or grant agreements that could have direct and material effect on each major federal and/or state program, and where applicable, refer to the separate Schedule of Findings and Questioned Costs
  • A Schedule of Findings and Questioned Costs which includes the following items as described in OMB Circular A-133, §__.505 and the State of Texas Single Audit Circular, §__.505:
    • A summary of the auditor’s results
    • Findings relating to the financial statements which are required to be reported in accordance with generally accepted governmental auditing standards (GAGAS)
    • Findings and questioned costs for federal and/or state awards
• Corrective Action Plan. The entity being audited must prepare a Corrective Action Plan for current year audit findings that includes the reference numbers the auditor assigns to audit findings. The corrective action plan must provide the name(s) of the contact person(s) responsible for corrective action, the corrective action planned, and the anticipated completion date. If the entity that is being audited does not agree with the audit findings or believes corrective action is not required, the Corrective Action Plan must include an explanation and specific reasons.

NOTE: Entities that are audited to comply with the audit requirements of OMB Circular A-133 are also required to submit a copy of the reporting package along with the data collection form described in OMB Circular A-133 §__.320 to the federal clearinghouse designated by the OMB. This submission requirement is in addition to the requirement to submit a copy of the reporting package to the oversight entity. (The data collection form is only required to be submitted to the federal clearinghouse, not to the oversight entity.) The same timeframes that apply to the submission of the reporting package to the oversight entity also apply when submitting the required documents to the federal clearinghouse. The audited entity is responsible for submitting the data collection form and a copy of the reporting package to the federal clearinghouse within required timeframes.

Authority:

• OMB Circular A-133 §§__.310, __.315(b)-(c), __.320(c), and __.505
• UGMS Part IV §§__.310, __.315(b)-(c), __.320(b), and __.505

Within six months of the date that the entity with oversight responsibility receives the audit reporting package, a Management Decision must be issued to the audited entity.

The audited entity should initiate corrective action within six months of the date that it receives the audit report and proceed as rapidly as possible to correct administrative issues, findings, and questioned costs. While the audited entity takes corrective action, the entity with oversight responsibility must conduct a desk review of the report and may request additional information or documentation.

Upon completion of the desk review, a Management Decision must be issued. The Management Decision must be issued within six months of the date that the entity with oversight responsibility received the audit. The Management Decision must include the reference numbers the auditor assigned to each audit finding and clearly state:

• Whether each audit finding is sustained
• The reasons for the decision
• A requirement to repay disallowed costs, make financial adjustments, or take other action

If corrective action has not been completed as of the issue date of the Management Decision letter, a timetable for follow-up should be given. The Management Decision letter should describe an appeal process available to the audited entity.

The sequence of letters that the Agency uses during and after the desk review are described below, however, Contractors with oversight responsibilities have local flexibility in the establishment of their own procedures as long as they meet the requirements above.

Prior Notice Letter. Reminds the subrecipient that an audit report package must be submitted to the oversight entity by a specified date. It is sent to subrecipients prior to the audit reporting package due date.

Delinquent Letter. Notifies the subrecipient that its audit reporting package was not received by the oversight entity by the due date and that, if not received within 60 days from the due date of the audit, sanctions may be imposed.

Extension Request Letter. Notifies the subrecipient that its request for an extension for single audit submission has been granted or denied.

Initial Resolution Letter. Initiates resolution of administrative issues, findings, and questioned costs for which corrective action has not yet been taken, and requires that specified information be submitted to the oversight entity within 30 days of the date of the Initial Resolution Letter.

No Response Letter. Notifies the subrecipient that the oversight entity has not received a response to an Initial Resolution Letter, and sanctions may be imposed if a response or explanation for the delay is not received within fifteen days of the date of letter.

Follow-up Letter. Notifies the subrecipient that the oversight entity has received a response to the Initial Resolution Letter and requires additional information and/or documentation be submitted to the oversight entity within 15 days of the date of the letter.

The letters above relate to the receipt and review of the audit and occur within the six-month timeframe prior to the release of a Management Decision. The following three Agency letters that may be used by the oversight entity, relate to the Management Decision and to unresolved administrative issues, findings, and questioned costs that remain outstanding after the six-month period.

Acceptance Letter (Management Decision). Notifies the subrecipient that the oversight entity has accepted the audit report and the audit file is closed.

Initial Determination Letter. Notifies the subrecipient that questioned costs in a specified amount have not been resolved within the six-month time period and allows the subrecipient thirty days from the date of the Initial Determination Letter to informally resolve the questioned costs.

Final Determination Letter. Establishes a debt against the subrecipient for questioned costs that were not resolved as a result of the Initial Determination Letter and notifies the subrecipient of appeal procedures. If the determination is not appealed within ten days of receipt of the Final Determination Letter, the debt must be paid to the oversight entity using non-federal and/or non-state funds.

Contractors with oversight responsibilities should develop local procedures for the prompt collection of debts. Cash is the preferred method of recovery; however, debt may also be settled by withholding amounts due or use of stand-in costs. Stand-in costs are discussed below under Other Special Considerations.

Program Specific Considerations:

Workforce Investment Act (WIA). If corrective action for a substantial violation of a specific provision of Title I of WIA does not occur within the specified timeframe, sanctions under 40 TAC Chapter 802Subchapter G may be imposed. Sanctions may also be imposed if an entity does not comply with applicable OMB uniform administrative requirements.

Other Special Considerations:

Stand-in Costs. Stand-in costs are non-federal, non-state costs that may be substituted for disallowed grant costs when certain conditions are met. In order to be considered stand-in costs, the proposed stand-in costs must meet the following criteria:

• Must have been allowable costs incurred under the grant, but not charged to the federal program (or any other program administered by the Agency)
• Must have been included within the scope of the audit
• Must have been accounted for in the auditee’s financial system
• May include cash match (expenditures of the organization used as match) that exceeds match requirements under the grant
• Must come from the same year as the costs that were proposed to be replaced
• Must not cause costs to exceed administrative or other cost limitations

Stand-in costs do not include in-kind match; uncompensated overtime; unbilled premises costs associated with fully depreciated publicly owned buildings; allocated costs derived from an improper allocation methodology; or discounts, refunds or rebates.

Authority:

• One-Stop Comprehensive Financial Management Technical Assistance Guide, Chapter II-12
• OMB Circular A-133 §__.405
• UGMS Part IV §__.405
• 40 TAC Chapter 802, Subchapter G