Proposed federal grant reforms would raise single-audit threshold

Proposed reforms designed to streamline and improve the way the federal government administers more than $600 billion in grants annually were published Friday by the Office of Management and Budget (OMB).

The OMB is proposing broad reforms to compliance audits performed under OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (also referred to as single audits or Circular A-133 audits). A number of other key grant reforms also are proposed.

If the proposal is approved, the threshold that triggers a single-audit requirement would be raised from $500,000 a year to $750,000 a year.

The proposal, titled Proposed OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for Federal Awards, was developed to combine multiple federal regulations for administering grants into a single, comprehensive, streamlined policy guide.

Proposed changes are designed to eliminate unnecessary and redundant requirements to achieve better outcomes at a lower cost. The OMB is seeking comments on the proposal by May 2.

The AICPA Governmental Audit Quality Center (GAQC) plans to comment on the proposal and seeks feedback from members to consider for its comment letter. Feedback is requested by March 8 at gaqc@aicpa.org. Access GAQC Alert No. 211 for more information about the proposal.

The increase in the threshold for single audits would mean that states, local governments, and not-for-profit entities that spend $750,000 or more in federal awards in a year would be required to undergo a single audit.

Entities that spend less than $750,000 in federal awards in a year would be required to make records available for review or audit by appropriate officials of the federal agency, passthrough entity, and the U.S. Government Accountability Office, according to the proposal.

The OMB proposes a number of other changes to the current rules for determining which federal programs will be audited as part of a single audit and that the number of types of compliance requirements to be tested in a single audit be reduced from 14 to six. These would be:

• Activities allowed or unallowed, and allowable costs/costs principles.
• Cash management.
• Eligibility.
• Reporting.
• Subrecipient monitoring.
• Special tests and provisions.

In addition, more detail will be required to be reported in auditor findings, but the questioned cost threshold for reporting will be increased from $10,000 to $25,000.

Eight existing OMB circulars will be combined into one document, which will clarify key differences for different entities. In addition, a blog post on the OMB website by OMB Controller Danny Werfel says the proposal is designed to:

• Simplify the reporting requirements that grantees must obey in justifying salaries and wages charged to grants.
• Ensure that federal agencies better review applicants’ financial risks and the merits of applications before grants are provided.
• Provide guidance to make sure robust oversight of subrecipients is conducted.
• Focus more audit resources on preventing waste, fraud, and abuse.
• Hold agencies accountable for results and addressing weakness among grant recipients.

OMB is offering a free, one-hour webcast Feb. 8 at 11 a.m. for the public to learn more about the proposal. Information on how to access the webcast is available at cfo.gov.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.