A-133 Audit Guidelines

OMB Control No. 0551-0035

Circular No. A-133
Revised to show changes published in the
Federal Register June 27, 2003 and June 26, 2007
Audits of States, Local Governments, and Non-Profit Organizations
Accompanying Federal Register Materials:

-- Audits of States, Local Governments, and Non-Profit Organizations June 30, 1997
- - Revision published June 27, 2003

This revision: (1) increased the dollar threshold for the audit requirement; and (2) made
changes regarding determination of cognizant and oversight agencies for audit.

- - Revision published June 26, 2007

This revision: (1) replaced the term “reportable conditions” with “significant deficiencies”
to conform with current auditing standards; and (2) updated report submission

requirements. Definition of “significant deficiencies” and “material weaknesses” are as
defined in generally accepted auditing standards issued by the American Institute of

Certified Public Accountants (AICPA) and Government Auditing Standards issued by the
Government Accountability Office.

[Note: The June 27, 2003 revisions: (1) increased the dollar threshold for the audit requirement, and (2)

made changes regarding determination of cognizant and oversight agencies for audit. The June 26, 2007

revisions make changes to (1) to replace the terms “reportable conditions” with “significant deficiencies” to
conform with changes in auditing standards; and (2) reporting submission requirements.

In several places, the Circular includes guidelines for the reporting of “significant deficiencies” and

“material weaknesses.” These terms are to be used as defined in generally accepted auditing standards
issued by the American Institute of Certified Public Accountants (AICPA), and Government Auditing

Standards issued by the Government Accountability Office.]

Circular No. A-133

Revised to show changes published in the Federal Registers
of June 27, 2003 and June 26, 2007

Audits of States, Local Governments, and Non-Profit Organizations

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT:

Audits of States, Local Governments, and Non-Profit Organizations

1.
Purpose. This Circular is issued pursuant to the Single Audit Act of

1984, P.L. 98-502, and the Single Audit Act Amendments of 1996, P.L. 104-156.

It sets forth standards for obtaining consistency and uniformity among Federal

agencies for the audit of States, local governments, and non-profit

organizations expending Federal awards.

2.
Authority. Circular A-133 is issued under the authority of sections

503, 1111, and 7501 et seq. of title 31, United States Code, and Executive

Orders 8248 and 11541.

3.
Rescission and Supersession. This Circular rescinds Circular A-128,

"Audits of State and Local Governments," issued April 12, 1985, and supersedes

the prior Circular A-133, "Audits of Institutions of Higher Education and

Other Non-Profit Institutions," issued April 22, 1996. For effective dates,

see paragraph 10.

4.
Policy. Except as provided herein, the standards set forth in this

Circular shall be applied by all Federal agencies. If any statute

specifically prescribes policies or specific requirements that differ from the

standards provided herein, the provisions of the subsequent statute shall

govern.

Federal agencies shall apply the provisions of the sections of this

Circular to non-Federal entities, whether they are recipients expending

Federal awards received directly from Federal awarding agencies, or are

subrecipients expending Federal awards received from a pass-through entity (a

recipient or another subrecipient).

This Circular does not apply to non-U.S. based entities expending

Federal awards received either directly as a recipient or indirectly as a

subrecipient.

5.
Definitions. The definitions of key terms used in this Circular are

contained in §___.105 in the Attachment to this Circular.

6.
Required Action. The specific requirements and responsibilities of

Federal agencies and non-Federal entities are set forth in the Attachment to

this Circular. Federal agencies

making awards to non-Federal entities, either directly or indirectly, shall

adopt the language in the Circular in codified regulations as provided in

Section 10 (below), unless different provisions are required by Federal

statute or are approved by the Office of Management and Budget (OMB).

7.
OMB Responsibilities. OMB will review Federal agency regulations and

implementation of this Circular, and will provide interpretations of policy

requirements and assistance to ensure uniform, effective and efficient

implementation.

8.
Information Contact. Further information concerning Circular A-133 may

be obtained by contacting the Financial Standards and Reporting Branch, Office

of Federal Financial Management, Office of Management and Budget, Washington,

DC 20503, telephone (202) 395-3993.

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9.
Review Date. This Circular will have a policy review three years from

the date of issuance.

10.
Effective Dates. The standards set forth in §___.400 of the Attachment

to this Circular, which apply directly to Federal agencies, shall be effective

July 1, 1996, and shall apply to audits of fiscal years beginning after June

30, 1996, except as otherwise specified in §___.400(a).

The standards set forth in this Circular that Federal agencies shall

apply to non-Federal entities shall be adopted by Federal agencies in codified

regulations not later than 60 days after publication of this final revision

in the Federal Register, so that they will apply to audits of fiscal years

beginning after June 30, 1996, with the exception that §___.305(b) of the

Attachment applies to audits of fiscal years beginning after June 30, 1998.

The requirements of Circular A-128, although the Circular is rescinded, and

the 1990 version of Circular A-133 remain in effect for audits of fiscal years

beginning on or before June 30, 1996.

The revisions published in the Federal Register June 27, 2003, are

effective for fiscal years ending after December 31, 2003, and early

implementation is not permitted with the exception of the definition of

oversight agency for audit which is effective July 28, 2003.

Augustine T. Smythe

Acting Director

The revisions published in the Federal Register June 26, 2007, are
effective for fiscal years ending on or after December 15, 2006.
Rob Portman
Director
Attachment

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PART__

--AUDITS OF STATES, LOCAL GOVERNMENTS, AND NON-PROFIT

ORGANIZATIONS

Subpart A--General

Sec.

__.100
__.105

Purpose.

Definitions.

Subpart B--Audits

__.200
Audit requirements.

__.205
Basis for determining Federal awards expended.

__.210
Subrecipient and vendor determinations.

__.215
Relation to other audit requirements.

__.220
Frequency of audits.

__.225
Sanctions.

__.230
Audit costs.

__.235
Program-specific audits.

Subpart C--Auditees

__.300
Auditee responsibilities.

__.305
Auditor selection.

__.310
Financial statements.

__.315
Audit findings follow-up.

__.320
Report submission.

Subpart D--Federal Agencies and Pass-Through Entities

__.400
Responsibilities.

__.405
Management decision.

Subpart E--Auditors

__.500
Scope of audit.

__.505
Audit reporting.

__.510
Audit findings.

__.515
Audit working papers.

__.520
Major program determination.

__.525
Criteria for Federal program risk.

__.530
Criteria for a low-risk auditee.

Appendix A to Part __ - Data Collection Form (Form SF-SAC).

Appendix B to Part __ - Circular A-133 Compliance Supplement.

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Subpart A--General

§___.100
Purpose.

This part sets forth standards for obtaining consistency and uniformity

among Federal agencies for the audit of non-Federal entities expending Federal

awards.

§___.105

Definitions.

Auditee means any non-Federal entity that expends Federal awards which

must be audited under this part.

Auditor means an auditor, that is a public accountant or a Federal,

State or local government audit organization, which meets the general

standards specified in generally accepted government auditing standards

(GAGAS). The term auditor does not include internal auditors of non-profit

organizations.

Audit finding means deficiencies which the auditor is required by

§___.510(a) to report in the schedule of findings and questioned costs.

CFDA number means the number assigned to a Federal program in the

Catalog of Federal Domestic Assistance (CFDA).

Cluster of programs means a grouping of closely related programs that

share common compliance requirements. The types of clusters of programs are

research and development (R&D), student financial aid (SFA), and other

clusters. "Other clusters" are as defined by the Office of Management and

Budget (OMB) in the compliance supplement or as designated by a State for

Federal awards the State provides to its subrecipients that meet the

definition of a cluster of programs. When designating an "other cluster," a

State shall identify the Federal awards included in the cluster and advise the

subrecipients of compliance requirements applicable to the cluster, consistent

with §___.400(d)(1) and §___.400(d)(2), respectively. A cluster of programs

shall be considered as one program for determining major programs, as

described in §___.520, and, with the exception of R&D as described in

§___.200(c), whether a program-specific audit may be elected.

Cognizant agency for audit means the Federal agency designated to carry

out the responsibilities described in §___.400(a).

Compliance supplement refers to the Circular A-133 Compliance

Supplement, included as Appendix B to Circular A-133, or such documents as

OMB or its designee may issue to replace it. This document is available from

the Government Printing Office, Superintendent of Documents, Washington, DC

20402-9325.

Corrective action means action taken by the auditee that:

(1) Corrects identified deficiencies;
(2) Produces recommended improvements; or
(3) Demonstrates that audit findings are either invalid or do not
warrant auditee action.

Federal agency has the same meaning as the term agency in Section 551(1)

of title 5, United States Code.

Federal award means Federal financial assistance and Federal cost-

reimbursement contracts that non-Federal entities receive directly from

Federal awarding agencies or indirectly from pass-through entities. It does

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not include procurement contracts, under grants or contracts, used to buy

goods or services from vendors. Any audits of such vendors shall be covered

by the terms and conditions of the contract. Contracts to operate Federal

Government owned, contractor operated facilities (GOCOs) are excluded from the

requirements of this part.

Federal awarding agency means the Federal agency that provides an award

directly to the recipient.

Federal financial assistance means assistance that non-Federal entities

receive or administer in the form of grants, loans, loan guarantees, property

(including donated surplus property), cooperative agreements, interest

subsidies, insurance, food commodities, direct appropriations, and other

assistance, but does not include amounts received as reimbursement for

services rendered to individuals as described in §___.205(h) and §___.205(i).

Federal program means:

(1)
All Federal awards to a non-Federal entity assigned a single

number in the CFDA.

(2)
When no CFDA number is assigned, all Federal awards from the same

agency made for the same purpose should be combined and considered one

program.

(3)
Notwithstanding paragraphs (1) and (2) of this definition, a

cluster of programs. The types of clusters of programs are:

(i)

Research and development (R&D);

(ii)

Student financial aid (SFA); and

(iii) "Other clusters," as described in the definition of cluster

of programs in this section.

GAGAS means generally accepted government auditing standards issued by

the Comptroller General of the United States, which are applicable to

financial audits.

Generally accepted accounting principles has the meaning specified in

generally accepted auditing standards issued by the American Institute of

Certified Public Accountants (AICPA).

Indian tribe means any Indian tribe, band, nation, or other organized

group or community, including any Alaskan Native village or regional or

village corporation (as defined in, or established under, the Alaskan Native

Claims Settlement Act) that is recognized by the United States as eligible for

the special programs and services provided by the United States to Indians

because of their status as Indians.

Internal control means a process, effected by an entity's management and

other personnel, designed to provide reasonable assurance regarding the

achievement of objectives in the following categories:

(1)

Effectiveness and efficiency of operations;

(2)

Reliability of financial reporting; and

(3)

Compliance with applicable laws and regulations.

Internal control pertaining to the compliance requirements for Federal

programs (Internal control over Federal programs) means a process--effected by

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an entity's management and other personnel--designed to provide reasonable

assurance regarding the achievement of the following objectives for Federal

programs:

(1)

Transactions are properly recorded and accounted for to:

(i)
Federal reports;
(ii)

Permit the preparation of reliable financial statements and
Maintain accountability over assets; and

(iii) Demonstrate compliance with laws, regulations, and other

compliance requirements;

(2)

Transactions are executed in compliance with:

(i)
Laws, regulations, and the provisions of contracts or grant

agreements that could have a direct and material effect on a Federal program;

and

(ii) Any other laws and regulations that are identified in the

compliance supplement; and

(3)
Funds, property, and other assets are safeguarded against loss

from unauthorized use or disposition.

Loan means a Federal loan or loan guarantee received or administered by

a non-Federal entity.

Local government means any unit of local government within a State,

including a county, borough, municipality, city, town, township, parish, local

public authority, special district, school district, intrastate district,

council of governments, and any other instrumentality of local government.

Major program means a Federal program determined by the auditor to be a

major program in accordance with §___.520 or a program identified as a major

program by a Federal agency or pass-through entity in accordance with

§___.215(c).

Management decision means the evaluation by the Federal awarding agency

or pass-through entity of the audit findings and corrective action plan and

the issuance of a written decision as to what corrective action is necessary.

Non-Federal entity means a State, local government, or non-profit

organization.

Non-profit organization means:

(1) any corporation, trust, association, cooperative, or other
organization that:

(i)
Is operated primarily for scientific, educational, service,

charitable, or similar purposes in the public interest;

(ii)

Is not organized primarily for profit; and

(iii) Uses its net proceeds to maintain, improve, or expand its

operations; and

(2)
The term non-profit organization includes non-profit institutions

of higher education and hospitals.

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OMB means the Executive Office of the President, Office of Management

and Budget.

Oversight agency for audit means the Federal awarding agency that

provides the predominant amount of direct funding to a recipient not assigned

a cognizant agency for audit. When there is no direct funding, the Federal

agency with the predominant indirect funding shall assume the oversight

responsibilities. The duties of the oversight agency for audit are described

in §___.400(b).

Effective July 28, 2003, the following is added to this definition:

A Federal agency with oversight for an auditee may reassign oversight to

another Federal agency which provides substantial funding and agrees to

be the oversight agency for audit. Within 30 days after any

reassignment, both the old and the new oversight agency for audit shall

notify the auditee, and, if known, the auditor of the reassignment."

Pass-through entity means a non-Federal entity that provides a Federal
award to a subrecipient to carry out a Federal program.
Program-specific audit means an audit of one Federal program as provided
for in §___.200(c) and §___.235.
Questioned cost means a cost that is questioned by the auditor because
of an audit finding:
(1)
Which resulted from a violation or possible violation of a
provision of a law, regulation, contract, grant, cooperative agreement, or
other agreement or document governing the use of Federal funds, including
funds used to match Federal funds;
(2)
Where the costs, at the time of the audit, are not supported by
adequate documentation; or
(3)
Where the costs incurred appear unreasonable and do not reflect
the actions a prudent person would take in the circumstances.
Recipient means a non-Federal entity that expends Federal awards
received directly from a Federal awarding agency to carry out a Federal
program.
Research and development (R&D) means all research activities, both basic
and applied, and all development activities that are performed by a nonFederal entity. Research is defined as a systematic study directed toward
fuller scientific knowledge or understanding of the subject studied. The term
research also includes activities involving the training of individuals in
research techniques where such activities utilize the same facilities as other
research and development activities and where such activities are not included
in the instruction function. Development is the systematic use of knowledge
and understanding gained from research directed toward the production of
useful materials, devices, systems, or methods, including design and
development of prototypes and processes.
Single audit means an audit which includes both the entity's financial
statements and the Federal awards as described in §___.500.
State means any State of the United States, the District of Columbia,
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, and the Trust Territory of the

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Pacific Islands, any instrumentality thereof, any multi-State, regional, or
interstate entity which has governmental functions, and any Indian tribe as
defined in this section.
Student Financial Aid (SFA) includes those programs of general student
assistance, such as those authorized by Title IV of the Higher Education Act
of 1965, as amended, (20 U.S.C. 1070 et seq.) which is administered by the
U.S. Department of Education, and similar programs provided by other Federal
agencies. It does not include programs which provide fellowships or similar
Federal awards to students on a competitive basis, or for specified studies or
research.
Subrecipient means a non-Federal entity that expends Federal awards
received from a pass-through entity to carry out a Federal program, but does
not include an individual that is a beneficiary of such a program. A
subrecipient may also be a recipient of other Federal awards directly from a
Federal awarding agency. Guidance on distinguishing between a subrecipient
and a vendor is provided in §___.210.
Types of compliance requirements refers to the types of compliance
requirements listed in the compliance supplement. Examples include:
activities allowed or unallowed; allowable costs/cost principles; cash
management; eligibility; matching, level of effort, earmarking; and,
reporting.
Vendor means a dealer, distributor, merchant, or other seller providing
goods or services that are required for the conduct of a Federal program.
These goods or services may be for an organization's own use or for the use of
beneficiaries of the Federal program. Additional guidance on distinguishing
between a subrecipient and a vendor is provided in §___.210.
Subpart B--Audits
§___.200
Audit requirements.
(a)
Audit required. Non-Federal entities that expend $300,000
($500,000 for fiscal years ending after December 31, 2003) or more in a year
in Federal awards shall have a single or program-specific audit conducted for
that year in accordance with the provisions of this part. Guidance on
determining Federal awards expended is provided in §___.205.
(b)
Single audit. Non-Federal entities that expend $300,000 ($500,000
for fiscal years ending after December 31, 2003) or more in a year in Federal
awards shall have a single audit conducted in accordance with §___.500 except
when they elect to have a program-specific audit conducted in accordance with
paragraph (c) of this section.
(c)
Program-specific audit election. When an auditee expends Federal
awards under only one Federal program (excluding R&D) and the Federal
program's laws, regulations, or grant agreements do not require a financial
statement audit of the auditee, the auditee may elect to have a programspecific audit conducted in accordance with §___.235. A program-specific
audit may not be elected for R&D unless all of the Federal awards expended
were received from the same Federal agency, or the same Federal agency and the
same pass-through entity, and that Federal agency, or pass-through entity in
the case of a subrecipient, approves in advance a program-specific audit.
(d)
Exemption when Federal awards expended are less than $300,000
($500,000 for fiscal years ending after December 31, 2003). Non-Federal

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entities that expend less than $300,000 ($500,000 for fiscal years ending
after December 31, 2003) a year in Federal awards are exempt from Federal
audit requirements for that year, except as noted in §___.215(a), but records
must be available for review or audit by appropriate officials of the Federal
agency, pass-through entity, and General Accounting Office (GAO).
(e)
Federally Funded Research and Development Centers (FFRDC).
Management of an auditee that owns or operates a FFRDC may elect to treat the
FFRDC as a separate entity for purposes of this part.
§___.205

Basis for determining Federal awards expended.

(a)
Determining Federal awards expended. The determination of when an
award is expended should be based on when the activity related to the award
occurs. Generally, the activity pertains to events that require the nonFederal entity to comply with laws, regulations, and the provisions of
contracts or grant agreements, such as: expenditure/expense transactions
associated with grants, cost-reimbursement contracts, cooperative agreements,
and direct appropriations; the disbursement of funds passed through to
subrecipients; the use of loan proceeds under loan and loan guarantee
programs; the receipt of property; the receipt of surplus property; the
receipt or use of program income; the distribution or consumption of food
commodities; the disbursement of amounts entitling the non-Federal entity to
an interest subsidy; and, the period when insurance is in force.
(b)
Loan and loan guarantees (loans). Since the Federal Government is
at risk for loans until the debt is repaid, the following guidelines shall be
used to calculate the value of Federal awards expended under loan programs,
except as noted in paragraphs (c) and (d) of this section:
(1)

Value of new loans made or received during the fiscal year;

plus
(2)
Balance of loans from previous years for which the Federal
Government imposes continuing compliance requirements; plus
(3)

Any interest subsidy, cash, or administrative cost allowance

received.
(c)
Loan and loan guarantees (loans) at institutions of higher
education. When loans are made to students of an institution of higher
education but the institution does not make the loans, then only the value of
loans made during the year shall be considered Federal awards expended in that
year. The balance of loans for previous years is not included as Federal
awards expended because the lender accounts for the prior balances.
(d)
Prior loan and loan guarantees (loans). Loans, the proceeds of
which were received and expended in prior-years, are not considered Federal
awards expended under this part when the laws, regulations, and the provisions
of contracts or grant agreements pertaining to such loans impose no continuing
compliance requirements other than to repay the loans.
(e)
Endowment funds. The cumulative balance of Federal awards for
endowment funds which are federally restricted are considered awards expended
in each year in which the funds are still restricted.
(f)
Free rent. Free rent received by itself is not considered a
Federal award expended under this part. However, free rent received as part

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of an award to carry out a Federal program shall be included in determining
Federal awards expended and subject to audit under this part.
(g)
Valuing non-cash assistance. Federal non-cash assistance, such as
free rent, food stamps, food commodities, donated property, or donated surplus
property, shall be valued at fair market value at the time of receipt or the
assessed value provided by the Federal agency.
(h)
Medicare. Medicare payments to a non-Federal entity for providing
patient care services to Medicare eligible individuals are not considered
Federal awards expended under this part.
(i)
Medicaid. Medicaid payments to a subrecipient for providing
patient care services to Medicaid eligible individuals are not considered
Federal awards expended under this part unless a State requires the funds to
be treated as Federal awards expended because reimbursement is on a costreimbursement basis.
(j)
Certain loans provided by the National Credit Union
Administration. For purposes of this part, loans made from the National
Credit Union Share Insurance Fund and the Central Liquidity Facility that are
funded by contributions from insured institutions are not considered Federal
awards expended.
§___.210

Subrecipient and vendor determinations.

(a)
General. An auditee may be a recipient, a subrecipient, and a
vendor. Federal awards expended as a recipient or a subrecipient would be
subject to audit under this part. The payments received for goods or services
provided as a vendor would not be considered Federal awards. The guidance in
paragraphs (b) and (c) of this section should be considered in determining
whether payments constitute a Federal award or a payment for goods and
services.
(b)
Federal award. Characteristics indicative of a Federal award
received by a subrecipient are when the organization:
(1)

Determines who is eligible to receive what Federal financial

assistance;
(2)
Has its performance measured against whether the objectives
of the Federal program are met;
(3)

Has responsibility for programmatic decision making;

(4)
Has responsibility for adherence to applicable Federal
program compliance requirements; and
(5)
Uses the Federal funds to carry out a program of the
organization as compared to providing goods or services for a program of the
pass-through entity.
(c)
Payment for goods and services. Characteristics indicative of a
payment for goods and services received by a vendor are when the organization:
(1)

Provides the goods and services within normal business

operations;

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(2)

Provides similar goods or services to many different

(3)

Operates in a competitive environment;

purchasers;

(4)
Provides goods or services that are ancillary to the
operation of the Federal program; and
(5)

Is not subject to compliance requirements of the Federal

program.
(d)
Use of judgment in making determination. There may be unusual
circumstances or exceptions to the listed characteristics. In making the
determination of whether a subrecipient or vendor relationship exists, the
substance of the relationship is more important than the form of the
agreement. It is not expected that all of the characteristics will be present
and judgment should be used in determining whether an entity is a subrecipient
or vendor.
(e)
For-profit subrecipient. Since this part does not apply to forprofit subrecipients, the pass-through entity is responsible for establishing
requirements, as necessary, to ensure compliance by for-profit subrecipients.
The contract with the for-profit subrecipient should describe applicable
compliance requirements and the for-profit subrecipient's compliance
responsibility. Methods to ensure compliance for Federal awards made to forprofit subrecipients may include pre-award audits, monitoring during the
contract, and post-award audits.
(f)
Compliance responsibility for vendors. In most cases, the
auditee's compliance responsibility for vendors is only to ensure that the
procurement, receipt, and payment for goods and services comply with laws,
regulations, and the provisions of contracts or grant agreements. Program
compliance requirements normally do not pass through to vendors. However, the
auditee is responsible for ensuring compliance for vendor transactions which
are structured such that the vendor is responsible for program compliance or
the vendor's records must be reviewed to determine program compliance. Also,
when these vendor transactions relate to a major program, the scope of the
audit shall include determining whether these transactions are in compliance
with laws, regulations, and the provisions of contracts or grant agreements.
§___.215

Relation to other audit requirements.

(a)
Audit under this part in lieu of other audits. An audit made in
accordance with this part shall be in lieu of any financial audit required
under individual Federal awards. To the extent this audit meets a Federal
agency's needs, it shall rely upon and use such audits. The provisions of
this part neither limit the authority of Federal agencies, including their
Inspectors General, or GAO to conduct or arrange for additional audits (e.g.,
financial audits, performance audits, evaluations, inspections, or reviews)
nor authorize any auditee to constrain Federal agencies from carrying out
additional audits. Any additional audits shall be planned and performed in
such a way as to build upon work performed by other auditors.
(b)
Federal agency to pay for additional audits. A Federal agency
that conducts or contracts for additional audits shall, consistent with other
applicable laws and regulations, arrange for funding the full cost of such
additional audits.

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(c)
Request for a program to be audited as a major program. A Federal
agency may request an auditee to have a particular Federal program audited as
a major program in lieu of the Federal agency conducting or arranging for the
additional audits. To allow for planning, such requests should be made at
least 180 days prior to the end of the fiscal year to be audited. The
auditee, after consultation with its auditor, should promptly respond to such
request by informing the Federal agency whether the program would otherwise be
audited as a major program using the risk-based audit approach described in
§___.520 and, if not, the estimated incremental cost. The Federal agency
shall then promptly confirm to the auditee whether it wants the program
audited as a major program. If the program is to be audited as a major
program based upon this Federal agency request, and the Federal agency agrees
to pay the full incremental costs, then the auditee shall have the program
audited as a major program. A pass-through entity may use the provisions of
this paragraph for a subrecipient.
§___.220

Frequency of audits.

Except for the provisions for biennial audits provided in paragraphs (a)
and (b) of this section, audits required by this part shall be performed
annually. Any biennial audit shall cover both years within the biennial
period.
(a)
A State or local government that is required by constitution or
statute, in effect on January 1, 1987, to undergo its audits less frequently
than annually, is permitted to undergo its audits pursuant to this part
biennially. This requirement must still be in effect for the biennial period
under audit.
(b)
Any non-profit organization that had biennial audits for all
biennial periods ending between July 1, 1992, and January 1, 1995, is
permitted to undergo its audits pursuant to this part biennially.
§___.225

Sanctions.

No audit costs may be charged to Federal awards when audits required by
this part have not been made or have been made but not in accordance with this
part. In cases of continued inability or unwillingness to have an audit
conducted in accordance with this part, Federal agencies and pass-through
entities shall take appropriate action using sanctions such as:
(a) Withholding a percentage of Federal awards until the audit is
completed satisfactorily;
(b) Withholding or disallowing overhead costs;
(c) Suspending Federal awards until the audit is conducted; or
(d) Terminating the Federal award.
§___.230

Audit costs.

(a)
Allowable costs. Unless prohibited by law, the cost of audits
made in accordance with the provisions of this part are allowable charges to
Federal awards. The charges may be considered a direct cost or an allocated
indirect cost, as determined in accordance with the provisions of applicable
OMB cost principles circulars, the Federal Acquisition Regulation (FAR) (48
CFR parts 30 and 31), or other applicable cost principles or regulations.

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(b)
Unallowable costs.
following to a Federal award:

A non-Federal entity shall not charge the

(1)
The cost of any audit under the Single Audit Act Amendments
of 1996 (31 U.S.C. 7501 et seq.) not conducted in accordance with this part.
(2)
The cost of auditing a non-Federal entity which has Federal
awards expended of less than $300,000 ($500,000 for fiscal years ending after
December 31, 2003) per year and is thereby exempted under §___.200(d) from
having an audit conducted under this part. However, this does not prohibit a
pass-through entity from charging Federal awards for the cost of limited scope
audits to monitor its subrecipients in accordance with §___.400(d)(3),
provided the subrecipient does not have a single audit. For purposes of this
part, limited scope audits only include agreed-upon procedures engagements
conducted in accordance with either the AICPA’s generally accepted auditing
standards or attestation standards, that are paid for and arranged by a passthrough entity and address only one or more of the following types of
compliance requirements: activities allowed or unallowed; allowable
costs/cost principles; eligibility; matching, level of effort, earmarking;
and, reporting.
§___.235

Program-specific audits.

(a)
Program-specific audit guide available. In many cases, a programspecific audit guide will be available to provide specific guidance to the
auditor with respect to internal control, compliance requirements, suggested
audit procedures, and audit reporting requirements. The auditor should
contact the Office of Inspector General of the Federal agency to determine
whether such a guide is available. When a current program-specific audit
guide is available, the auditor shall follow GAGAS and the guide when
performing a program-specific audit.
(b)
Program-specific audit guide not available. (1) When a programspecific audit guide is not available, the auditee and auditor shall have
basically the same responsibilities for the Federal program as they would have
for an audit of a major program in a single audit.
(2)
The auditee shall prepare the financial statement(s) for the
Federal program that includes, at a minimum, a schedule of expenditures of
Federal awards for the program and notes that describe the significant
accounting policies used in preparing the schedule, a summary schedule of
prior audit findings consistent with the requirements of §___.315(b), and a
corrective action plan consistent with the requirements of §___.315(c).
(3)

The auditor shall:

(i)
Perform an audit of the financial statement(s) for the
Federal program in accordance with GAGAS;
(ii) Obtain an understanding of internal control and
perform tests of internal control over the Federal program consistent with the
requirements of §___.500(c) for a major program;
(iii) Perform procedures to determine whether the auditee
has complied with laws, regulations, and the provisions of contracts or grant
agreements that could have a direct and material effect on the Federal program
consistent with the requirements of §___.500(d) for a major program; and

13

(iv) Follow up on prior audit findings, perform procedures
to assess the reasonableness of the summary schedule of prior audit findings
prepared by the auditee, and report, as a current year audit finding, when the
auditor concludes that the summary schedule of prior audit findings materially
misrepresents the status of any prior audit finding in accordance with the
requirements of §___.500(e).
(4)
The auditor's report(s) may be in the form of either
combined or separate reports and may be organized differently from the manner
presented in this section. The auditor's report(s) shall state that the audit
was conducted in accordance with this part and include the following:
(i)
An opinion (or disclaimer of opinion) as to whether
the financial statement(s) of the Federal program is presented fairly in all
material respects in conformity with the stated accounting policies;
(ii) A report on internal control related to the Federal
program, which shall describe the scope of testing of internal control and the
results of the tests;
(iii) A report on compliance which includes an opinion (or
disclaimer of opinion) as to whether the auditee complied with laws,
regulations, and the provisions of contracts or grant agreements which could
have a direct and material effect on the Federal program; and
(iv) A schedule of findings and questioned costs for the
Federal program that includes a summary of the auditor's results relative to
the Federal program in a format consistent with §___.505(d)(1) and findings
and questioned costs consistent with the requirements of §___.505(d)(3).
(c)
Report submission for program-specific audits.
(1) The audit shall be completed and the reporting required by paragraph
(c)(2) or (c)(3) of this section submitted 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 Federal agency
that provided the funding or a different period is specified in a programspecific audit guide. (However, for fiscal years beginning on or before June
30, 1998, the audit shall be completed and the required reporting 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, unless a different
period is specified in a program-specific audit guide.) Unless restricted by
law or regulation, the auditee shall make report copies available for public
inspection.
(2)
When a program-specific audit guide is available, the
auditee shall submit to the Federal clearinghouse designated by OMB the data
collection form prepared in accordance with §___.320(b), as applicable to a
program-specific audit, and the reporting required by the program-specific
audit guide to be retained as an archival copy. Also, the auditee shall
submit to the Federal awarding agency or pass-through entity the reporting
required by the program-specific audit guide.
(3)
When a program-specific audit guide is not available, the
reporting package for a program-specific audit shall consist of the financial
statement(s) of the Federal program, a summary schedule of prior audit
findings, and a corrective action plan as described in paragraph (b)(2) of
this section, and the auditor's report(s) described in paragraph (b)(4) of
this section. The data collection form prepared in accordance with

14

§___.320(b), as applicable to a program-specific audit, and one copy of this
reporting package shall be submitted to the Federal clearinghouse designated
by OMB to be retained as an archival copy. Also, when the schedule of
findings and questioned costs disclosed audit findings or the summary schedule
of prior audit findings reported the status of any audit findings, the auditee
shall submit one copy of the reporting package to the Federal clearinghouse on
behalf of the Federal awarding agency, or directly to the pass-through entity
in the case of a subrecipient. Instead of submitting the reporting package to
the pass-through entity, when a subrecipient is not required to submit a
reporting package to the pass-through entity, the subrecipient shall provide
written notification to the pass-through entity, consistent with the
requirements of §___.320(e)(2). A subrecipient may submit a copy of the
reporting package to the pass-through entity to comply with this notification
requirement.
(d)
Other sections of this part may apply. Program-specific audits
are subject to §___.100 through §___.215(b), §___.220 through §___.230,
§___.300 through §___.305, §___.315, §___.320(f) through §___.320(j), §___.400
through §___.405, §___.510 through §___.515, and other referenced provisions
of this part unless contrary to the provisions of this section, a programspecific audit guide, or program laws and regulations.
Subpart C--Auditees
§___.300
Auditee responsibilities.
The auditee shall:
(a)
Identify, in its accounts, all Federal awards received
expended and the Federal programs under which they were received.
program and award identification shall include, as applicable, the
and number, award number and year, name of the Federal agency, and
pass-through entity.

and
Federal
CFDA title
name of the

(b)
Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing
Federal awards in compliance with laws, regulations, and the provisions of
contracts or grant agreements that could have a material effect on each of its
Federal programs.
(c)
Comply with laws, regulations, and the provisions of contracts or
grant agreements related to each of its Federal programs.
(d)
Prepare appropriate financial statements, including the schedule
of expenditures of Federal awards in accordance with §___.310.
(e)
Ensure that the audits required by this part are properly
performed and submitted when due. When extensions to the report submission
due date required by §___.320(a) are granted by the cognizant or oversight
agency for audit, promptly notify the Federal clearinghouse designated by OMB
and each pass-through entity providing Federal awards of the extension.
(f)
Follow up and take corrective action on audit findings, including
preparation of a summary schedule of prior audit findings and a corrective
action plan in accordance with §___.315(b) and §___.315(c), respectively.
§___.305

Auditor selection.

15

(a)
Auditor procurement. In procuring audit services, auditees shall
follow the procurement standards prescribed by the Grants Management Common
Rule (hereinafter referred to as the "A-102 Common Rule") published March 11,
1988 and amended April 19, 1995 [insert appropriate CFR citation], Circular
A-110, "Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals and Other Non-Profit
Organizations," or the FAR (48 CFR part 42), as applicable (OMB Circulars are
available from the Office of Administration, Publications Office, room 2200,
New Executive Office Building, Washington, DC 20503). Whenever possible,
auditees shall make positive efforts to utilize small businesses, minorityowned firms, and women's business enterprises, in procuring audit services as
stated in the A-102 Common Rule, OMB Circular A-110, or the FAR (48 CFR part
42), as applicable. In requesting proposals for audit services, the
objectives and scope of the audit should be made clear. Factors to be
considered in evaluating each proposal for audit services include the
responsiveness to the request for proposal, relevant experience, availability
of staff with professional qualifications and technical abilities, the results
of external quality control reviews, and price.
(b)
Restriction on auditor preparing indirect cost proposals . An

auditor who prepares the indirect cost proposal or cost allocation plan may

not also be selected to perform the audit required by this part when the

indirect costs recovered by the auditee during the prior year exceeded $1

million. This restriction applies to the base year used in the preparation of

the indirect cost proposal or cost allocation plan and any subsequent years in

which the resulting indirect cost agreement or cost allocation plan is used to

recover costs. To minimize any disruption in existing contracts for audit

services, this paragraph applies to audits of fiscal years beginning after

June 30, 1998.

(c)
Use of Federal auditors. Federal auditors may perform all or part

of the work required under this part if they comply fully with the

requirements of this part.

§___.310

Financial statements.

(a)
Financial statements. The auditee shall 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. The financial statements shall be for the same organizational unit

and fiscal year that is chosen to meet the requirements of this part.

However, organization-wide financial statements may also include departments,

agencies, and other organizational units that have separate audits in

accordance with §___.500(a) and prepare separate financial statements.

(b)
Schedule of expenditures of Federal awards . The auditee shall

also prepare a schedule of expenditures of Federal awards for the period

covered by the auditee's financial statements. While not required, the

auditee may choose to provide information requested by Federal awarding

agencies and pass-through entities to make the schedule easier to use. For

example, when a Federal program has multiple award years, the auditee may list

the amount of Federal awards expended for each award year separately. At a
minimum, the schedule shall:
(1)
List individual Federal programs by Federal agency. For
Federal programs included in a cluster of programs, list individual Federal

programs within a cluster of programs. For R&D, total Federal awards expended

shall be shown either by individual award or by Federal agency and major

subdivision within the Federal agency. For example, the National Institutes

of Health is a major subdivision in the Department of Health and Human

Services.

16

(2)
For Federal awards received as a subrecipient, the name of

the pass-through entity and identifying number assigned by the pass-through

entity shall be included.

(3)
Provide total Federal awards expended for each individual

Federal program and the CFDA number or other identifying number when the CFDA

information is not available.

(4)
Include notes that describe the significant accounting

policies used in preparing the schedule.

(5)
To the extent practical, pass-through entities should

identify in the schedule the total amount provided to subrecipients from each

Federal program.

(6)
Include, in either the schedule or a note to the schedule,

the value of the Federal awards expended in the form of non-cash assistance,

the amount of insurance in effect during the year, and loans or loan

guarantees outstanding at year end. While not required, it is preferable to

present this information in the schedule.

§___.315

Audit findings follow-up.

(a)
General. The auditee is responsible for follow-up and corrective

action on all audit findings. As part of this responsibility, the auditee

shall prepare a summary schedule of prior audit findings. The auditee shall

also prepare a corrective action plan for current year audit findings. The

summary schedule of prior audit findings and the corrective action plan shall

include the reference numbers the auditor assigns to audit findings under

§___.510(c). Since the summary schedule may include audit findings from

multiple years, it shall include the fiscal year in which the finding

initially occurred.

(b)
Summary schedule of prior audit findings. The summary schedule of

prior audit findings shall report the status of all audit findings included in

the prior audit's schedule of findings and questioned costs relative to

Federal awards. The summary schedule shall also include audit findings

reported in the prior audit's summary schedule of prior audit findings except

audit findings listed as corrected in accordance with paragraph (b)(1) of this

section, or no longer valid or not warranting further action in accordance

with paragraph (b)(4) of this section.

(1)
When audit findings were fully corrected, the summary

schedule need only list the audit findings and state that corrective action

was taken.

(2)
When audit findings were not corrected or were only

partially corrected, the summary schedule shall describe the planned

corrective action as well as any partial corrective action taken.

(3)
When corrective action taken is significantly different from

corrective action previously reported in a corrective action plan or in the

Federal agency's or pass-through entity's management decision, the summary

schedule shall provide an explanation.

(4)
When the auditee believes
valid or do not warrant further action, the
described in the summary schedule. A valid
finding as not warranting further action is
occurred:

(i)

the audit findings are no
reasons for this position
reason for considering an
that all of the following

longer

shall be

audit

have

Two years have passed since the audit report in which

17

the finding occurred was submitted to the Federal clearinghouse;

(ii) The Federal agency or pass-through entity is not

currently following up with the auditee on the audit finding; and

(iii) A management decision was not issued.

(c)
Corrective action plan. At the completion of the audit, the

auditee shall prepare a corrective action plan to address each audit finding

included in the current year auditor's reports. The corrective action plan

shall provide the name(s) of the contact person(s) responsible for corrective

action, the corrective action planned, and the anticipated completion date.

If the auditee does not agree with the audit findings or believes corrective

action is not required, then the corrective action plan shall include an

explanation and specific reasons.

§___.320

Report submission.

(a)
General. The audit shall be completed and the data collection

form described in paragraph (b) of this section and reporting package

described in paragraph (c) of this section shall be submitted 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 cognizant or oversight agency for audit. (However, for fiscal

years beginning on or before June 30, 1998, the audit shall be completed and

the data collection form and 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.) Unless restricted by law or regulation,

the auditee shall make copies available for public inspection.

(b)
Data Collection. (1) The auditee shall submit a data collection

form which states whether the audit was completed in accordance with this part

and provides information about the auditee, its Federal programs, and the

results of the audit. The form shall be approved by OMB, available from the

Federal clearinghouse designated by OMB, and include data elements similar to

those presented in this paragraph. A senior level representative of the

auditee (e.g., State controller, director of finance, chief executive officer,

or chief financial officer) shall sign a statement to be included as part of

the form certifying that: the auditee complied with the requirements of this

part, the form was prepared in accordance with this part (and the instructions

accompanying the form), and the information included in the form, in its

entirety, are accurate and complete.

(2)

The data collection form shall include the following data

elements:

(i)

The type of report the auditor issued on the financial statements of
the auditee (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion).

(ii)

Where applicable, a statement that significant deficiencies in internal
control were disclosed by the audit of the financial statements and
whether any such conditions were material weaknesses.

(iii)

A statement as to whether the audit disclosed any noncompliance which
is material to the financial statements of the auditee.

(iv)

Where applicable, a statement that significant deficiencies in internal
control over major programs were disclosed by the audit and whether
any such conditions were material weaknesses.

(v)

The type of report the auditor issued on compliance for major

18

programs (i.e., unqualified opinion, qualified opinion, adverse
opinion, or disclaimer of opinion).
(vi)

A list of the Federal awarding agencies which will receive a copy of
the reporting package pursuant to §___.320(d)(2) of OMB Circular
A-133.

(vii)

A yes or no statement as to whether the auditee qualified as a lowrisk auditee under §___.530 of OMB Circular A-133.

(viii)

The dollar threshold used to distinguish between Type A and Type B
programs as defined in §___.520(b) of OMB Circular A-133.

(ix)

The Catalog of Federal Domestic Assistance (CFDA) number for each
Federal program, as applicable.

(x)

The name of each Federal program and identification of each major
program. Individual programs within a cluster of programs should be
listed in the same level of detail as they are listed in the schedule
of expenditures of Federal awards.

(xi)

The amount of expenditures in the schedule of expenditures of Federal
awards associated with each Federal program.

(xii)

For each Federal program, a yes or no statement as to whether there
are audit findings in each of the following types of compliance
requirements and the total amount of any questioned costs:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
(N)

Activities allowed or unallowed.
Allowable costs/cost principles.
Cash management.
Davis-Bacon Act.
Eligibility.
Equipment and real property management.
Matching, level of effort, earmarking.
Period of availability of Federal funds.
Procurement and suspension and debarment.
Program income.
Real property acquisition and relocation assistance.
Reporting.
Subrecipient monitoring.
Special tests and provisions.

(xiii)

Auditee Name, Employer Identification Number(s), Name and Title of
Certifying Official, Telephone Number, Signature, and Date.

(xiv)

Auditor Name, Name and Title of Contact Person, Auditor Address,
Auditor Telephone Number, Signature, and Date.

(xv)

Whether the auditee has either a cognizant or oversight agency for
audit.

(xvi)

The name of the cognizant or oversight agency for audit determined in
accordance with §___.400(a) and §___.400(b), respectively.

(3)
Using the information included in the reporting package
described in paragraph (c) of this section, the auditor shall complete the

applicable sections of the form. The auditor shall sign a statement to be

included as part of the data collection form that indicates, at a minimum, the

source of the information included in the form, the auditor’s responsibility

for the information, that the form is not a substitute for the reporting

package described in paragraph (c) of this section, and that the content of

19

the form is limited to the data elements prescribed by OMB.

(c)

Reporting package.

The reporting package shall include the:

(1)
Financial statements and schedule of expenditures of

Federal awards discussed in §___.310(a) and §___.310(b), respectively;

(2)
§___.315(b);

Summary schedule of prior audit findings discussed in

(3)

Auditor's report(s) discussed in §___.505; and

(4)

Corrective action plan discussed in §___.315(c).

(d)
Submission to clearinghouse. All auditees shall submit to the Federal

clearinghouse designated by OMB a single copy of the data collection form
described in paragraph (b) of this section and the reporting package described

in paragraph (c) of this section.

(e)
Additional submission by subrecipients. (1) In addition to the

requirements discussed in paragraph (d) of this section, auditees that are

also subrecipients shall submit to each pass-through entity one copy of the

reporting package described in paragraph (c) of this section for each pass-

through entity when the schedule of findings and questioned costs disclosed

audit findings relating to Federal awards that the pass-through entity

provided or the summary schedule of prior audit findings reported the status

of any audit findings relating to Federal awards that the pass-through entity

provided.

(2)
Instead of submitting the reporting package to a pass-

through entity, when a subrecipient is not required to submit a reporting

package to a pass-through entity pursuant to paragraph (e)(1) of this section,

the subrecipient shall provide written notification to the pass-through entity

that: an audit of the subrecipient was conducted in accordance with this part

(including the period covered by the audit and the name, amount, and CFDA

number of the Federal award(s) provided by the pass-through entity); the

schedule of findings and questioned costs disclosed no audit findings relating

to the Federal award(s) that the pass-through entity provided; and, the

summary schedule of prior audit findings did not report on the status of any

audit findings relating to the Federal award(s) that the pass-through entity

provided. A subrecipient may submit a copy of the reporting package described

in paragraph (c) of this section to a pass-through entity to comply with this

notification requirement.

(f)
Requests for report copies. In response to requests by a Federal

agency or pass-through entity, auditees shall submit the appropriate copies of

the reporting package described in paragraph (c) of this section and, if

requested, a copy of any management letters issued by the auditor.

(g)
Report retention requirements. Auditees shall keep one copy of

the data collection form described in paragraph (b) of this section and one

copy of the reporting package described in paragraph (c) of this section on

file for three years from the date of submission to the Federal clearinghouse

20

designated by OMB. Pass-through entities shall keep subrecipients'

submissions on file for three years from date of receipt.

(h)
Clearinghouse responsibilities. The Federal clearinghouse

designated by OMB shall distribute the reporting packages received in

accordance with paragraph (d)(2) of this section and §___.235(c)(3) to

applicable Federal awarding agencies, maintain a data base of completed

audits, provide appropriate information to Federal agencies, and follow up

with known auditees which have not submitted the required data collection

forms and reporting packages.

(i)
Clearinghouse address. The address of the Federal clearinghouse

currently designated by OMB is Federal Audit Clearinghouse, Bureau of the

Census, 1201 E. 10th Street, Jeffersonville, IN 47132.

(j)
Electronic filing. Nothing in this part shall preclude electronic

submissions to the Federal clearinghouse in such manner as may be approved by

OMB. With OMB approval, the Federal clearinghouse may pilot test methods of

electronic submissions.

Subpart D--Federal Agencies and Pass-Through Entities

§___.400
Responsibilities.

(a)
Cognizant agency for audit responsibilities . Recipients expending

more than $25 million ($50 million for fiscal years ending after December 31,

2003) a year in Federal awards shall have a cognizant agency for audit. The

designated cognizant agency for audit shall be the Federal awarding agency

that provides the predominant amount of direct funding to a recipient unless

OMB makes a specific cognizant agency for audit assignment.

Following is effective for fiscal years ending on or before December 31, 2003:

To provide for continuity of cognizance, the determination of the predominant

amount of direct funding shall be based upon direct Federal awards expended in

the recipient's fiscal years ending in 1995, 2000, 2005, and every fifth year

thereafter. For example, audit cognizance for periods ending in 1997 through

2000 will be determined based on Federal awards expended in 1995. (However,

for States and local governments that expend more than $25 million a year in

Federal awards and have previously assigned cognizant agencies for audit, the

requirements of this paragraph are not effective until fiscal years beginning

after June 30, 2000.)

Following is effective for fiscal years ending after December 31, 2003:

The determination of the predominant amount of direct funding shall be based

upon direct Federal awards expended in the recipient's fiscal years ending in

2004, 2009, 2014, and every fifth year thereafter. For example, audit

cognizance for periods ending in 2006 through 2010 will be determined based on

Federal awards expended in 2004. (However, for 2001 through 2005,the

cognizant agency for audit is determined based on the predominant amount of

direct Federal awards expended in the recipient's fiscal year ending in 2000).

Notwithstanding the manner in which audit cognizance is determined, a Federal

awarding agency with cognizance for an auditee may reassign cognizance to

another Federal awarding agency which provides substantial direct funding and

agrees to be the cognizant agency for audit. Within 30 days after any

reassignment, both the old and the new cognizant agency for audit shall notify

the auditee, and, if known, the auditor of the reassignment. The cognizant

agency for audit shall:

(1)

Provide technical audit advice and liaison to auditees and

(2)

Consider auditee requests for extensions to the report

auditors.

21

submission due date required by §___.320(a).
may grant extensions for good cause.

The cognizant agency for audit

(3)
Obtain or conduct quality control reviews of selected

audits made by non-Federal auditors, and provide the results, when

appropriate, to other interested organizations.

(4)
Promptly inform other affected Federal agencies and

appropriate Federal law enforcement officials of any direct reporting by the

auditee or its auditor of irregularities or illegal acts, as required by GAGAS

or laws and regulations.

(5)
Advise the auditor and, where appropriate, the auditee of

any deficiencies found in the audits when the deficiencies require corrective

action by the auditor. When advised of deficiencies, the auditee shall work

with the auditor to take corrective action. If corrective action is not

taken, the cognizant agency for audit shall notify the auditor, the auditee,

and applicable Federal awarding agencies and pass-through entities of the

facts and make recommendations for follow-up action. Major inadequacies or

repetitive substandard performance by auditors shall be referred to

appropriate State licensing agencies and professional bodies for disciplinary

action.

(6)
Coordinate, to the extent practical, audits or reviews

made by or for Federal agencies that are in addition to the audits made

pursuant to this part, so that the additional audits or reviews build upon

audits performed in accordance with this part.

(7)
Coordinate a management decision for audit findings that

affect the Federal programs of more than one agency.

(8)
Coordinate the audit work and reporting responsibilities

among auditors to achieve the most cost-effective audit.

(9)
For biennial audits permitted under §___.220, consider

auditee requests to qualify as a low-risk auditee under §___.530(a).

(b)
Oversight agency for audit responsibilities . An auditee which

does not have a designated cognizant agency for audit will be under the

general oversight of the Federal agency determined in accordance with

§___.105. The oversight agency for audit:

(1)

Shall provide technical advice to auditees and auditors as

requested.
(2)
May assume all or some of the responsibilities normally
performed by a cognizant agency for audit.

(c)
Federal awarding agency responsibilities. The Federal awarding

agency shall perform the following for the Federal awards it makes:

(1)
Identify Federal awards made by informing each recipient

of the CFDA title and number, award name and number, award year, and if the

award is for R&D. When some of this information is not available, the Federal

agency shall provide information necessary to clearly describe the Federal

award.

(2)
Advise recipients of requirements imposed on them by

Federal laws, regulations, and the provisions of contracts or grant

agreements.

(3)

Ensure that audits are completed and reports are received

22

in a timely manner and in accordance with the requirements of this part.

(4)
Provide technical advice and counsel to auditees and

auditors as requested.

(5)
Issue a management decision on audit findings within six

months after receipt of the audit report and ensure that the recipient takes

appropriate and timely corrective action.

(6)
Assign a person responsible for providing annual updates

of the compliance supplement to OMB.

(d)
Pass-through entity responsibilities. A pass-through entity shall

perform the following for the Federal awards it makes:

(1)
Identify Federal awards made by informing each

subrecipient of CFDA title and number, award name and number, award year, if

the award is R&D, and name of Federal agency. When some of this information

is not available, the pass-through entity shall provide the best information

available to describe the Federal award.

(2)
Advise subrecipients of requirements imposed on them by

Federal laws, regulations, and the provisions of contracts or grant agreements

as well as any supplemental requirements imposed by the pass-through entity.

(3)
Monitor
ensure that Federal awards
laws, regulations, and the
that performance goals are

the activities of subrecipients as necessary to

are used for authorized purposes in compliance with

provisions of contracts or grant agreements and

achieved.

(4)
Ensure that subrecipients expending $300,000 ($500,000 for

fiscal years ending after December 31, 2003) or more in Federal awards during

the subrecipient's fiscal year have met the audit requirements of this part

for that fiscal year.

(5)
Issue a management decision on audit findings within six

months after receipt of the subrecipient's audit report and ensure that the

subrecipient takes appropriate and timely corrective action.

(6)
Consider whether subrecipient audits necessitate

adjustment of the pass-through entity's own records.

(7)
Require each subrecipient to permit the pass-through

entity and auditors to have access to the records and financial statements as

necessary for the pass-through entity to comply with this part.

§___.405

Management decision.

(a)
General. The management decision shall clearly state whether or

not the audit finding is sustained, the reasons for the decision, and the

expected auditee action to repay disallowed costs, make financial adjustments,

or take other action. If the auditee has not completed corrective action, a

timetable for follow-up should be given. Prior to issuing the management

decision, the Federal agency or pass-through entity may request

additional information or documentation from the auditee, including a request

for auditor assurance related to the documentation, as a way of mitigating

disallowed costs. The management decision should describe any appeal process

available to the auditee.

(b)
Federal agency. As provided in §___.400(a)(7), the cognizant

agency for audit shall be responsible for coordinating a management decision

for audit findings that affect the programs of more than one Federal agency.

23

As provided in §___.400(c)(5), a Federal awarding agency is responsible for

issuing a management decision for findings that relate to Federal awards it

makes to recipients. Alternate arrangements may be made on a case-by-case

basis by agreement among the Federal agencies concerned.

(c)
Pass-through entity. As provided in §___.400(d)(5), the pass-

through entity shall be responsible for making the management decision for

audit findings that relate to Federal awards it makes to subrecipients.

(d)
Time requirements. The entity responsible for making the

management decision shall do so within six months of receipt of the audit

report. Corrective action should be initiated within six months after receipt

of the audit report and proceed as rapidly as possible.

(e)
Reference numbers. Management decisions shall include the

reference numbers the auditor assigned to each audit finding in accordance

with §___.510(c).

Subpart E--Auditors

§___.500
Scope of audit.

(a)
General. The audit shall be conducted in accordance with GAGAS.

The audit shall cover the entire operations of the auditee; or, at the option

of the auditee, such audit shall include a series of audits that cover

departments, agencies, and other organizational units which expended or

otherwise administered Federal awards during such fiscal year, provided that

each such audit shall encompass the financial statements and schedule of

expenditures of Federal awards for each such department, agency, and other

organizational unit, which shall be considered to be a non-Federal entity.

The financial statements and schedule of expenditures of Federal awards shall

be for the same fiscal year.

(b)
Financial statements. The auditor shall determine whether the

financial statements of the auditee are presented fairly in all material

respects in conformity with generally accepted accounting principles. The

auditor shall also determine whether the schedule of expenditures of Federal

awards is presented fairly in all material respects in relation to the

auditee's financial statements taken as a whole.

(c)
Internal control. (1) In addition to the requirements of GAGAS,

the auditor shall perform procedures to obtain an understanding of internal

control over Federal programs sufficient to plan the audit to support a low

assessed level of control risk for major programs.

(2)
Except as provided in paragraph (c)(3) of this section,

the auditor shall:

(i)
Plan the testing of internal control over major

programs to support a low assessed level of control risk for the assertions

relevant to the compliance requirements for each major program; and

(ii)
Perform testing of internal control as planned in

paragraph (c)(2)(i) of this section.

(3)
When internal control over some or all of the compliance

requirements for a major program are likely to be ineffective in preventing or

detecting noncompliance, the planning and performing of testing described in

paragraph (c)(2) of this section are not required for those compliance

requirements. However, the auditor shall report a significant deficiency

(including whether any such condition is a material weakness) in accordance

with §___.510, assess the related control risk at the maximum, and consider

whether additional compliance tests are required because of ineffective

24

internal control.

(d)
Compliance. (1) In addition to the requirements of GAGAS, the

auditor shall determine whether the auditee has complied with laws,

regulations, and the provisions of contracts or grant agreements that may have

a direct and material effect on each of its major programs.

(2)
The principal compliance requirements applicable to most

Federal programs and the compliance requirements of the largest Federal

programs are included in the compliance supplement.

(3)
For the compliance requirements related to Federal

programs contained in the compliance supplement, an audit of these compliance

requirements will meet the requirements of this part. Where there have been

changes to the compliance requirements and the changes are not reflected in

the compliance supplement, the auditor shall determine the current compliance

requirements and modify the audit procedures accordingly. For those Federal

programs not covered in the compliance supplement, the auditor should use the

types of compliance requirements contained in the compliance supplement as

guidance for identifying the types of compliance requirements to test, and

determine the requirements governing the Federal program by reviewing the

provisions of contracts and grant agreements and the laws and regulations

referred to in such contracts and grant agreements.

(4)
The compliance testing shall include tests of transactions

and such other auditing procedures necessary to provide the auditor sufficient

evidence to support an opinion on compliance.

(e)
Audit follow-up. The auditor shall follow-up on prior audit

findings, perform procedures to assess the reasonableness of the summary

schedule of prior audit findings prepared by the auditee in accordance with

§___.315(b), and report, as a current year audit finding, when the auditor

concludes that the summary schedule of prior audit findings materially

misrepresents the status of any prior audit finding. The auditor shall

perform audit follow-up procedures regardless of whether a prior audit finding

relates to a major program in the current year.

(f)
Data Collection Form. As required in §___.320(b)(3), the auditor

shall complete and sign specified sections of the data collection form.

§___.505

Audit reporting.

The auditor's report(s) may be in the form of either combined or

separate reports and may be organized differently from the manner presented in

this section. The auditor's report(s) shall state that the audit was

conducted in accordance with this part and include the following:

(a)
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 and an opinion (or disclaimer of

opinion) as to whether the schedule of expenditures of Federal awards is

presented fairly in all material respects in relation to the financial

statements taken as a whole.

(b)
A report on internal control related to the financial statements

and major programs. This report shall describe the scope of testing of

internal control and the results of the tests, and, where applicable, refer to

the separate schedule of findings and questioned costs described in paragraph

(d) of this section.

(c)
A report on compliance with laws, regulations, and the provisions

of contracts or grant agreements, noncompliance with which could have a

25

material effect on the financial statements. This report shall also include

an opinion (or disclaimer of opinion) as to whether the auditee complied with

laws, regulations, and the provisions of contracts or grant agreements which

could have a direct and material effect on each major program, and, where

applicable, refer to the separate schedule of findings and questioned costs

described in paragraph (d) of this section.

(d)
A schedule of findings and questioned costs which shall include

the following three components:

(1)

A summary of the auditor's results which shall include:

(i)
The type of report the auditor issued on the

financial statements of the auditee (i.e., unqualified opinion, qualified

opinion, adverse opinion, or disclaimer of opinion);

(ii)
Where applicable, a statement that significant

deficiencies in internal control were disclosed by the audit of the financial

statements and whether any such conditions were material weaknesses;

(iii) A statement as to whether the audit disclosed any

noncompliance which is material to the financial statements of the auditee;

(iv)
Where applicable, a statement that significant

deficiencies in internal control over major programs were disclosed by the audit

and whether any such conditions were material weaknesses;

(v)
The type of report the auditor issued on compliance

for major programs (i.e., unqualified opinion, qualified opinion, adverse

opinion, or disclaimer of opinion);

(vi)
A statement as to whether the audit disclosed any

audit findings which the auditor is required to report under §___.510(a);

(vii)

An identification of major programs;

(viii)The dollar threshold used to distinguish between

Type A and Type B programs, as described in §___.520(b); and

(ix)
A statement as to whether the auditee qualified as

a low-risk auditee under §___.530.

(2)
Findings relating to the financial statements which are

required to be reported in accordance with GAGAS.

(3)
Findings and questioned costs for Federal awards which

shall include audit findings as defined in §___.510(a).

(i)
Audit findings (e.g., internal control findings,

compliance findings, questioned costs, or fraud) which relate to the same

issue should be presented as a single audit finding. Where practical, audit

findings should be organized by Federal agency or pass-through entity.

(ii)
Audit findings which relate to both the financial

statements and Federal awards, as reported under paragraphs (d)(2) and (d)(3)

of this section, respectively, should be reported in both sections of the

schedule. However, the reporting in one section of the schedule may be in

summary form with a reference to a detailed reporting in the other section of

the schedule.

§___.510

Audit findings.

26

(a)
Audit findings reported. The auditor shall report the following

as audit findings in a schedule of findings and questioned costs:

(1) Significant deficiencies in internal control over major

programs. The auditor's determination of whether a deficiency in internal

control is a significant deficieicny for the purpose of reporting an audit

finding is in relation to a type of compliance requirement for a major program

or an audit objective identified in the compliance supplement. The auditor

shall identify significant deficiencies which are individually or cumulatively

material weaknesses.

(2)
Material noncompliance with the provisions of laws,

regulations, contracts, or grant agreements related to a major program. The

auditor's determination of whether a noncompliance with the provisions of

laws, regulations, contracts, or grant agreements is material for the purpose

of reporting an audit finding is in relation to a type of compliance

requirement for a major program or an audit objective identified in the

compliance supplement.

(3)
Known questioned costs which are greater than $10,000 for

a type of compliance requirement for a major program. Known questioned costs

are those specifically identified by the auditor. In evaluating the effect of

questioned costs on the opinion on compliance, the auditor considers the best

estimate of total costs questioned (likely questioned costs), not just the

questioned costs specifically identified (known questioned costs). The

auditor shall also report known questioned costs when likely questioned costs

are greater than $10,000 for a type of compliance requirement for a major

program. In reporting questioned costs, the auditor shall include information

to provide proper perspective for judging the prevalence and consequences of

the questioned costs.

(4)
Known questioned costs which are greater than $10,000 for

a Federal program which is not audited as a major program. Except for audit

follow-up, the auditor is not required under this part to perform audit

procedures for such a Federal program; therefore, the auditor will normally

not find questioned costs for a program which is not audited as a major

program. However, if the auditor does become aware of questioned costs for a

Federal program which is not audited as a major program (e.g., as part of

audit follow-up or other audit procedures) and the known questioned costs are

greater than $10,000, then the auditor shall report this as an audit finding.

(5)
The circumstances concerning why the auditor's report on

compliance for major programs is other than an unqualified opinion, unless

such circumstances are otherwise reported as audit findings in the schedule of

findings and questioned costs for Federal awards.

(6)
Known fraud affecting a Federal award, unless such fraud

is otherwise reported as an audit finding in the schedule of findings and

questioned costs for Federal awards. This paragraph does not require the

auditor to make an additional reporting when the auditor confirms that the

fraud was reported outside of the auditor's reports under the direct reporting

requirements of GAGAS.

(7)
Instances where the results of audit follow-up procedures

disclosed that the summary schedule of prior audit findings prepared by the

auditee in accordance with §___.315(b) materially misrepresents the status of

any prior audit finding.

(b)
Audit finding detail. Audit findings shall be presented in

sufficient detail for the auditee to prepare a corrective action plan and take

corrective action and for Federal agencies and pass-through entities to arrive

at a management decision. The following specific information shall be

27

included, as applicable, in audit findings:

(1)
Federal program and specific Federal award identification

including the CFDA title and number, Federal award number and year, name of

Federal agency, and name of the applicable pass-through entity. When

information, such as the CFDA title and number or Federal award number, is not

available, the auditor shall provide the best information available to

describe the Federal award.

(2)
The criteria or specific requirement upon which the audit

finding is based, including statutory, regulatory, or other citation.

(3)
The condition found, including facts that support the

deficiency identified in the audit finding.

(4)

Identification of questioned costs and how they were

computed.
(5)
Information to provide proper perspective for judging the
prevalence and consequences of the audit findings, such as whether the audit

findings represent an isolated instance or a systemic problem. Where

appropriate, instances identified shall be related to the universe and the

number of cases examined and be quantified in terms of dollar value.

(6)
The possible asserted effect to provide sufficient

information to the auditee and Federal agency, or pass-through entity in the

case of a subrecipient, to permit them to determine the cause and effect to

facilitate prompt and proper corrective action.

(7)
Recommendations to prevent future occurrences of the

deficiency identified in the audit finding.

(8)
Views of responsible officials of the auditee when there

is disagreement with the audit findings, to the extent practical.

(c)
Reference numbers. Each audit finding in the schedule of findings

and questioned costs shall include a reference number to allow for easy

referencing of the audit findings during follow-up.

§___.515

Audit working papers.

(a)
Retention of working papers. The auditor shall retain working

papers and reports for a minimum of three years after the date of issuance of

the auditor's report(s) to the auditee, unless the auditor is notified in

writing by the cognizant agency for audit, oversight agency for audit, or

pass-through entity to extend the retention period. When the auditor is aware

that the Federal awarding agency, pass-through entity, or auditee is

contesting an audit finding, the auditor shall contact the parties contesting

the audit finding for guidance prior to destruction of the working papers and

reports.

(b)
Access to working papers. Audit working papers shall be made

available upon request to the cognizant or oversight agency for audit or its

designee, a Federal agency providing direct or indirect funding, or GAO at the

completion of the audit, as part of a quality review, to resolve audit

findings, or to carry out oversight responsibilities consistent with the

purposes of this part. Access to working papers includes the right of Federal

agencies to obtain copies of working papers, as is reasonable and necessary.

28

§___.520

Major program determination.

(a)
General. The auditor shall use a risk-based approach to determine

which Federal programs are major programs. This risk-based approach shall

include consideration of: Current and prior audit experience, oversight by

Federal agencies and pass-through entities, and the inherent risk of the

Federal program. The process in paragraphs (b) through (i) of this section

shall be followed.

(b)
Step 1. (1) The auditor shall identify the larger Federal

programs, which shall be labeled Type A programs. Type A programs are defined

as Federal programs with Federal awards expended during the audit period

exceeding the larger of:

(i)
$300,000 or three percent (.03) of total Federal

awards expended in the case of an auditee for which total Federal awards

expended equal or exceed $300,000 but are less than or equal to $100 million.

(ii)
$3 million or three-tenths of one percent (.003) of

total Federal awards expended in the case of an auditee for which total

Federal awards expended exceed $100 million but are less than or equal to $10

billion.

(iii) $30 million or 15 hundredths of one percent (.0015)

of total Federal awards expended in the case of an auditee for which total

Federal awards expended exceed $10 billion.

(2)
Federal programs not labeled Type A under paragraph (b)(1)

of this section shall be labeled Type B programs.

(3)
The inclusion of large loan and loan guarantees (loans)

should not result in the exclusion of other programs as Type A programs. When

a Federal program providing loans significantly affects the number or size of

Type A programs, the auditor shall consider this Federal program as a Type A

program and exclude its values in determining other Type A programs.

(4)
For biennial audits permitted under §___.220, the

determination of Type A and Type B programs shall be based upon the Federal

awards expended during the two-year period.

(c)
Step 2. (1) The auditor shall identify Type A programs which are

low-risk. For a Type A program to be considered low-risk, it shall have been

audited as a major program in at least one of the two most recent audit

periods (in the most recent audit period in the case of a biennial audit),

and, in the most recent audit period, it shall have had no audit findings

under §___.510(a). However, the auditor may use judgment and consider that

audit findings from questioned costs under §___.510(a)(3) and §___.510(a)(4),

fraud under §___.510(a)(6), and audit follow-up for the summary schedule of

prior audit findings under §___.510(a)(7) do not preclude the Type A program

from being low-risk. The auditor shall consider: the criteria in §___.525(c),

§___.525(d)(1), §___.525(d)(2), and §___.525(d)(3); the results of audit

follow-up; whether any changes in personnel or systems affecting a Type A

program have significantly increased risk; and apply professional judgment in

determining whether a Type A program is low-risk.

(2)
Notwithstanding paragraph (c)(1) of this section, OMB may

approve a Federal awarding agency's request that a Type A program at certain

recipients may not be considered low-risk. For example, it may be necessary

for a large Type A program to be audited as major each year at particular

recipients to allow the Federal agency to comply with the Government

Management Reform Act of 1994 (31 U.S.C. 3515). The Federal agency shall

notify the recipient and, if known, the auditor at least 180 days prior to the

29

end of the fiscal year to be audited of OMB's approval.

(d)
Step 3. (1) The auditor shall identify Type B programs which are

high-risk using professional judgment and the criteria in §___.525. However,

should the auditor select Option 2 under Step 4 (paragraph (e)(2)(i)(B) of

this section), the auditor is not required to identify more high-risk Type B

programs than the number of low-risk Type A programs. Except for known

significant deficiencies in internal control or compliance problems as discussed

in §___.525(b)(1), §___.525(b)(2), and §___.525(c)(1), a single criteria in

§___.525 would seldom cause a Type B program to be considered high-risk.

(2)
The auditor is not expected to perform risk assessments on

relatively small Federal programs. Therefore, the auditor is only required to

perform risk assessments on Type B programs that exceed the larger of:

(i)
$100,000 or three-tenths of one percent (.003) of

total Federal awards expended when the auditee has less than or equal to $100

million in total Federal awards expended.

(ii)
$300,000 or three-hundredths of one percent (.0003)

of total Federal awards expended when the auditee has more than $100 million

in total Federal awards expended.

(e)
Step 4. At a minimum, the auditor shall audit all of the

following as major programs:

(1)
All Type A programs, except the auditor may exclude any

Type A programs identified as low-risk under Step 2 (paragraph (c)(1) of this

section).

(2) (i)
High-risk Type B programs as identified under

either of the following two options:

(A) Option 1. At least one half of the Type B

programs identified as high-risk under Step 3 (paragraph (d) of this section),

except this paragraph (e)(2)(i)(A) does not require the auditor to audit more

high-risk Type B programs than the number of low-risk Type A programs

identified as low-risk under Step 2.

(B) Option 2. One high-risk Type B program for

each Type A program identified as low-risk under Step 2.

(ii)
When identifying which high-risk Type B programs to

audit as major under either Option 1 or 2 in paragraph (e)(2)(i)(A) or (B),

the auditor is encouraged to use an approach which provides an opportunity for

different high-risk Type B programs to be audited as major over a period of

time.

(3)
Such additional programs as may be necessary to comply

with the percentage of coverage rule discussed in paragraph (f) of this

section. This paragraph (e)(3) may require the auditor to audit more programs

as major than the number of Type A programs.

(f)
Percentage of coverage rule. The auditor shall audit as major

programs Federal programs with Federal awards expended that, in the aggregate,

encompass at least 50 percent of total Federal awards expended. If the

auditee meets the criteria in §___.530 for a low-risk auditee, the auditor

need only audit as major programs Federal programs with Federal awards

expended that, in the aggregate, encompass at least 25 percent of total

Federal awards expended.

(g)

Documentation of risk.

The auditor shall document in the working

30

papers the risk analysis process used in determining major programs.

(h)
Auditor's judgment. When the major program determination was

performed and documented in accordance with this part, the auditor's judgment

in applying the risk-based approach to determine major programs shall be

presumed correct. Challenges by Federal agencies and pass-through entities

shall only be for clearly improper use of the guidance in this part. However,

Federal agencies and pass-through entities may provide auditors guidance about

the risk of a particular Federal program and the auditor shall consider this

guidance in determining major programs in audits not yet completed.

(i)
Deviation from use of risk criteria. For first-year audits, the

auditor may elect to determine major programs as all Type A programs plus any

Type B programs as necessary to meet the percentage of coverage rule discussed

in paragraph (f) of this section. Under this option, the auditor would not be

required to perform the procedures discussed in paragraphs (c), (d), and (e)

of this section.

(1)
A first-year audit is the first year the entity is audited

under this part or the first year of a change of auditors.

(2)
To ensure that a frequent change of auditors would not

preclude audit of high-risk Type B programs, this election for first-year

audits may not be used by an auditee more than once in every three years.

§___.525

Criteria for Federal program risk.

(a)
General. The auditor's determination should be based on an

overall evaluation of the risk of noncompliance occurring which could be

material to the Federal program. The auditor shall use auditor judgment and

consider criteria, such as described in paragraphs (b), (c), and (d) of this

section, to identify risk in Federal programs. Also, as part of the risk

analysis, the auditor may wish to discuss a particular Federal program with

auditee management and the Federal agency or pass-through entity.

(b)
Current and prior audit experience. (1) Weaknesses in internal

control over Federal programs would indicate higher risk. Consideration

should be given to the control environment over Federal programs and such

factors as the expectation of management's adherence to applicable laws and

regulations and the provisions of contracts and grant agreements and the

competence and experience of personnel who administer the Federal programs.

(i)
A Federal program administered under multiple

internal control structures may have higher risk. When assessing risk in a

large single audit, the auditor shall consider whether weaknesses are isolated

in a single operating unit (e.g., one college campus) or pervasive throughout

the entity.

(ii)
When significant parts of a Federal program are

passed through to subrecipients, a weak system for monitoring subrecipients

would indicate higher risk.

(iii) The extent to which computer processing is used to

administer Federal programs, as well as the complexity of that processing,

should be considered by the auditor in assessing risk. New and recently

modified computer systems may also indicate risk.

(2)
Prior audit findings would indicate higher risk,

particularly when the situations identified in the audit findings could have a

significant impact on a Federal program or have not been corrected.

(3)

Federal programs not recently audited as major programs

31

may be of higher risk than Federal programs recently audited as major programs

without audit findings.

(c)
Oversight exercised by Federal agencies and pass-through entities .

(1) Oversight exercised by Federal agencies or pass-through entities could

indicate risk. For example, recent monitoring or other reviews performed by

an oversight entity which disclosed no significant problems would indicate

lower risk. However, monitoring which disclosed significant problems would

indicate higher risk.

(2)
Federal agencies, with the concurrence of OMB, may

identify Federal programs which are higher risk. OMB plans to provide this

identification in the compliance supplement.

(d)
Inherent risk of the Federal program. (1) The nature of a

Federal program may indicate risk. Consideration should be given to the

complexity of the program and the extent to which the Federal program

contracts for goods and services. For example, Federal programs that disburse

funds through third party contracts or have eligibility criteria may be of

higher risk. Federal programs primarily involving staff payroll costs may

have a high-risk for time and effort reporting, but otherwise be at low-risk.

(2)
The phase of a Federal program in its life cycle at the

Federal agency may indicate risk. For example, a new Federal program with new

or interim regulations may have higher risk than an established program with

time-tested regulations. Also, significant changes in Federal programs, laws,

regulations, or the provisions of contracts or grant agreements may increase

risk.

(3)
The phase of a Federal program in its life cycle at the

auditee may indicate risk. For example, during the first and last years that

an auditee participates in a Federal program, the risk may be higher due to

start-up or closeout of program activities and staff.

(4)
Type B programs with larger Federal awards expended would

be of higher risk than programs with substantially smaller Federal awards

expended.

§___.530

Criteria for a low-risk auditee.

An auditee which meets all of the following conditions for each of the

preceding two years (or, in the case of biennial audits, preceding two audit

periods) shall qualify as a low-risk auditee and be eligible for reduced audit

coverage in accordance with §___.520:

(a)
Single audits were performed on an annual basis in accordance with

the provisions of this part. A non-Federal entity that has biennial audits

does not qualify as a low-risk auditee, unless agreed to in advance by the

cognizant or oversight agency for audit.

(b)
The auditor's opinions on the financial statements and the

schedule of expenditures of Federal awards were unqualified. However, the

cognizant or oversight agency for audit may judge that an opinion

qualification does not affect the management of Federal awards and provide a

waiver.

(c)
There were no deficiencies in internal control which were

identified as material weaknesses under the requirements of GAGAS. However,

the cognizant or oversight agency for audit may judge that any identified

material weaknesses do not affect the management of Federal awards and provide

a waiver.

32

(d)
None of the Federal programs had audit findings from any of the

following in either of the preceding two years (or, in the case of biennial

audits, preceding two audit periods) in which they were classified as Type A

programs:

(1)
Internal control deficiencies which were identified as

material weaknesses;

(2)
Noncompliance with the provisions of laws, regulations,

contracts, or grant agreements which have a material effect on the Type A

program; or

(3)
Known or likely questioned costs that exceed five percent

of the total Federal awards expended for a Type A program during the year.

Appendix A to Part __ - Data Collection Form (Form SF-SAC)

[insert SF-SAC after finalized]

Appendix B to Part __ - Circular A-133 Compliance Supplement

Note: Provisional OMB Circular A-133 Compliance Supplement is available

from the Office of Administration, Publications Office, room 2200, New

Executive Office Building, Washington, DC 20503.

33