Posted by Christina Bell, CPA
On December 26, 2013, the Office of Management and Budget (OMB) published in the Federal Register Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule. The guidance in this document supersedes the requirements found in OMB Circular A-133 Audits of States, Local Governments and Non-Profit Organizations as well as several other OMB Circulars.
Currently, all nonprofit organizations that expend $500,000 or more in federal funding in a given fiscal year are required to conduct a single audit, also known as an “A-133 Audit.” For fiscal years beginning on or after January 1, 2015 the single audit threshold increases to $750,000. Those organizations that expend less than $750,000 in federal funding will be required to make their records available for review or audit, if requested, to appropriate officials of the federal agency, pass-through entities, or the U. S. Government Accountability Office. Federal funding includes funds received directly from federal agencies, as well as those received from pass-through entities, such as a state government.
The single audit threshold increase is not the only OMB Circular A-133 change nonprofit organizations should be familiar with. Other significant changes effective for fiscal years beginning on or after January 1, 2015 include the following:
- Reportable Audit Findings – The reporting threshold for known questioned costs increases from $10,000 to $25,000.
- Major Program Determination – The most notable changes in determining if a program is major includes the following:
- The minimum threshold for a major program (Type A) will increase from $300,000 to $750,000 for organizations that expend between $750,000 and $25 million in federal funds.
- Auditors previously had to ensure that 25 percent of federal expenditures were audited for a low-risk auditee, and 50 percent for an auditee not assessed as low-risk. For fiscal years beginning on or after January 1, 2015 those coverage requirements have been lowered to 20 percent (low-risk auditee) and 40 percent (not a low-risk auditee).
- A significant deficiency in internal control alone will not exclude a Type A program from being considered low risk.
- Criteria for Low-Risk Auditee – Criteria to be considered a low risk auditee have been expanded to include the following:
- The organization must have an unmodified opinion on their schedule of expenditures of federal awards (in relation to the basic financial statements as a whole).
- The organization must not have a going concern opinion.
- Findings – The new guidance places an increased emphasis on repeat findings. The required elements of a finding now include a statement about whether or not a finding is a repeat finding. In addition, if an audit finding from a previous year is not fully corrected by the subsequent year, the reason for the finding’s recurrence must be included in the schedule of prior audit findings.
- Audit Reports Publicly Available – Audit reports will now be publicly available on the Internet through the Federal Audit Clearinghouse.
Nonprofit organizations should review, with the assistance of their auditors, their obligations under programs in which federal funds are received to ensure all requirements are fulfilled and determine whether the changes to OMB Circular A-133 affect future audit requirements.