[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3184 Introduced in House (IH)]

  2d Session
                                H. R. 3184

To streamline and improve the effectiveness of chapter 75 of title 31, 
 United States Code (commonly referred to as the ``Single Audit Act'').


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 28, 1996

 Mr. Horn (for himself, Mr. Clinger, Mr. Davis, Mrs. Maloney, and Mr. 
    Peterson of Minnesota) introduced the following bill; which was 
      referred to the Committee on Government Reform and Oversight

_______________________________________________________________________

                                 A BILL


 
To streamline and improve the effectiveness of chapter 75 of title 31, 
 United States Code (commonly referred to as the ``Single Audit Act'').

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; PURPOSES.

    (a) Short Title.--This Act may be cited as the ``Single Audit Act 
Amendments of 1996''.
    (b) Purposes.--The purposes of this Act are to--
            (1) promote sound financial management, including effective 
        internal controls, with respect to Federal awards administered 
        by non-Federal entities;
            (2) establish uniform requirements for audits of Federal 
        awards administered by non-Federal entities;
            (3) promote the efficient and effective use of audit 
        resources;
            (4) reduce burdens on State and local governments, Indian 
        tribes, and nonprofit organizations; and
            (5) ensure that Federal departments and agencies, to the 
        maximum extent practicable, rely upon and use audit work done 
        pursuant to chapter 75 of title 31, United States Code (as 
        amended by this Act).

SEC. 2. AMENDMENT TO TITLE 31, UNITED STATES CODE.

    Chapter 75 of title 31, United States Code, is amended to read as 
follows:

              ``CHAPTER 75--REQUIREMENTS FOR SINGLE AUDITS

``Sec.
``7501. Definitions.
``7502. Audit requirements; exemptions.
``7503. Relation to other audit requirements.
``7504. Federal agency responsibilities and relations with non-Federal 
                            entities.
``7505. Regulations.
``7506. Monitoring responsibilities of the Comptroller General.
``7507. Effective date.
``Sec. 7501. Definitions
    ``(a) As used in this chapter, the term--
            ``(1) `Comptroller General' means the Comptroller General 
        of the United States;
            ``(2) `Director' means the Director of the Office of 
        Management and Budget;
            ``(3) `Federal agency' has the same meaning as the term 
        `agency' in section 551(1) of title 5;
            ``(4) `Federal awards' 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;
            ``(5) `Federal financial assistance' means assistance that 
        non-Federal entities receive or administer in the form of 
        grants, loans, loan guarantees, property, cooperative 
        agreements, interest subsidies, insurance, donated surplus 
        property, food commodities, direct appropriations, or other 
        assistance, but does not include amounts received as 
        reimbursement for services rendered to individuals in 
        accordance with guidance issued by the Director;
            ``(6) `Federal program' means all Federal awards to a non-
        Federal entity assigned a single number in the Catalog of 
        Federal Domestic Assistance or encompassed in a group of 
        numbers or other category as defined by the Director;
            ``(7) `generally accepted government auditing standards' 
        means the government auditing standards issued by the 
        Comptroller General;
            ``(8) `independent auditor' means--
                    ``(A) an external State or local government auditor 
                who meets the independence standards included in 
                generally accepted government auditing standards; or
                    ``(B) a public accountant who meets such 
                independence standards;
            ``(9) `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;
            ``(10) `internal controls' 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:
                    ``(A) Effectiveness and efficiency of operations.
                    ``(B) Reliability of financial reporting.
                    ``(C) Compliance with applicable laws and 
                regulations;
            ``(11) `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, any other instrumentality of 
        local government and, in accordance with guidelines issued by 
        the Director, a group of local governments;
            ``(12) `major program' means a Federal program identified 
        in accordance with risk-based criteria prescribed by the 
        Director under this chapter, subject to the limitations 
        described under subsection (b);
            ``(13) `non-Federal entity' means a State, local 
        government, or nonprofit organization;
            ``(14) `nonprofit organization' means any corporation, 
        trust, association, cooperative, or other organization that--
                    ``(A) is operated primarily for scientific, 
                educational, service, charitable, or similar purposes 
                in the public interest;
                    ``(B) is not organized primarily for profit; and
                    ``(C) uses net proceeds to maintain, improve, or 
                expand the operations of the organization;
            ``(15) `pass-through entity' means a non-Federal entity 
        that provides Federal awards to a subrecipient to carry out a 
        Federal program;
            ``(16) `program-specific audit' means an audit of one 
        Federal program;
            ``(17) `recipient' means a non-Federal entity that receives 
        awards directly from a Federal agency to carry out a Federal 
        program;
            ``(18) `single audit' means an audit, as described under 
        section 7502(d), of a non-Federal entity that includes the 
        entity's financial statements and Federal awards;
            ``(19) `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 
        Pacific Islands, any instrumentality thereof, any multi-State, 
        regional, or interstate entity which has governmental 
        functions, and any Indian tribe; and
            ``(20) `subrecipient' means a non-Federal entity that 
        receives Federal awards through another non-Federal entity to 
        carry out a Federal program, but does not include an individual 
        who receives financial assistance through such awards.
    ``(b) In prescribing risk-based program selection criteria for 
major programs, the Director shall not require more programs to be 
identified as major for a particular non-Federal entity, except as 
prescribed under subsection (c) or as provided under subsection (d), 
than would be identified if the major programs were defined as any 
program for which total expenditures of Federal awards by the non-
Federal entity during the applicable year exceed--
            ``(1) the larger of $30,000,000 or 0.15 percent of the non-
        Federal entity's total Federal expenditures, in the case of a 
        non-Federal entity for which such total expenditures for all 
        programs exceed $10,000,000,000;
            ``(2) the larger of $3,000,000, or 0.30 percent of the non-
        Federal entity's total Federal expenditures, in the case of a 
        non-Federal entity for which such total expenditures for all 
        programs exceed $100,000,000 but are less than or equal to 
        $10,000,000,000; or
            ``(3) the larger of $300,000, or 3 percent of such total 
        Federal expenditures for all programs, in the case of a non-
        Federal entity for which such total expenditures for all 
        programs equal or exceed $300,000 but are less than or equal to 
        $100,000,000.
    ``(c) When the total expenditures of a non-Federal entity's major 
programs are less than 50 percent of the non-Federal entity's total 
expenditures of all Federal awards (or such lower percentage as 
specified by the Director), the auditor shall select and test 
additional programs as major programs as necessary to achieve audit 
coverage of at least 50 percent of Federal expenditures by the non-
Federal entity (or such lower percentage as specified by the Director), 
in accordance with guidance issued by the Director.
    ``(d) Loan or loan guarantee programs, as specified by the 
Director, shall not be subject to the application of subsection (b).
``Sec. 7502. Audit requirements; exemptions
    ``(a)(1)(A) Each non-Federal entity that expends a total amount of 
Federal awards equal to or in excess of $300,000 or such other amount 
specified by the Director under subsection (a)(3) in any fiscal year of 
such non-Federal entity shall have either a single audit or a program-
specific audit made for such fiscal year in accordance with the 
requirements of this chapter.
    ``(B) Each such non-Federal entity that expends Federal awards 
under more than one Federal program shall undergo a single audit in 
accordance with the requirements of subsections (b) through (i) of this 
section and guidance issued by the Director under section 7505.
    ``(C) Each such non-Federal entity that expends awards under only 
one Federal program and is not subject to laws, regulations, or Federal 
award agreements that require a financial statement audit of the non-
Federal entity, may elect to have a program-specific audit conducted in 
accordance with applicable provisions of this section and guidance 
issued by the Director under section 7505.
    ``(2)(A) Each non-Federal entity that expends a total amount of 
Federal awards of less than $300,000 or such other amount specified by 
the Director under subsection (a)(3) in any fiscal year of such entity, 
shall be exempt for such fiscal year from compliance with--
            ``(i) the audit requirements of this chapter; and
            ``(ii) any applicable requirements concerning financial 
        audits contained in Federal statutes and regulations governing 
        programs under which such Federal awards are provided to that 
        non-Federal entity.
    ``(B) The provisions of subparagraph (A)(ii) of this paragraph 
shall not exempt a non-Federal entity from compliance with any 
provision of a Federal statute or regulation that requires such non-
Federal entity to maintain records concerning Federal awards provided 
to such non-Federal entity or that permits a Federal agency, pass-
through entity, or the Comptroller General access to such records.
    ``(3) Every 2 years, the Director shall review the amount for 
requiring audits prescribed under paragraph (1)(A) and may adjust such 
dollar amount consistent with the purposes of this chapter, provided 
the Director does not make such adjustments below $300,000.
    ``(b)(1) Except as provided in paragraphs (2) and (3), audits 
conducted pursuant to this chapter shall be conducted annually.
    ``(2) 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 chapter biennially. Audits conducted biennially under the 
provisions of this paragraph shall cover both years within the biennial 
period.
    ``(3) Any nonprofit 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 chapter biennially. 
Audits conducted biennially under the provisions of this paragraph 
shall cover both years within the biennial period.
    ``(c) Each audit conducted pursuant to subsection (a) shall be 
conducted by an independent auditor in accordance with generally 
accepted government auditing standards, except that, for the purposes 
of this chapter, performance audits shall not be required except as 
authorized by the Director.
    ``(d) Each single audit conducted pursuant to subsection (a) for 
any fiscal year shall--
            ``(1) cover the operations of the entire non-Federal 
        entity; or
            ``(2) at the option of such non-Federal entity 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 organizational unit, which 
        shall be considered to be a non-Federal entity.
    ``(e) The auditor shall--
            ``(1) determine whether the financial statements are 
        presented fairly in all material respects in conformity with 
        generally accepted accounting principles;
            ``(2) determine 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;
            ``(3) with respect to internal controls pertaining to the 
        compliance requirements for each major program--
                    ``(A) obtain an understanding of such internal 
                controls;
                    ``(B) assess control risk; and
                    ``(C) perform tests of controls unless the controls 
                are deemed to be ineffective; and
            ``(4) determine whether the non-Federal entity has complied 
        with the provisions of laws, regulations, and contracts or 
        grants pertaining to Federal awards that have a direct and 
        material effect on each major program.
    ``(f)(1) Each Federal agency which provides Federal awards to a 
recipient shall--
            ``(A) provide such recipient the program names (and any 
        identifying numbers) from which such awards are derived, and 
        the Federal requirements which govern the use of such awards 
        and the requirements of this chapter; and
            ``(B) review the audit of a recipient as necessary to 
        determine whether prompt and appropriate corrective action has 
        been taken with respect to audit findings, as defined by the 
        Director, pertaining to Federal awards provided to the 
        recipient by the Federal agency.
    ``(2) Each pass-through entity shall--
            ``(A) provide such subrecipient the program names (and any 
        identifying numbers) from which such assistance is derived, and 
        the Federal requirements which govern the use of such awards 
        and the requirements of this chapter;
            ``(B) monitor the subrecipient's use of Federal awards 
        through site visits, limited scope audits, or other means;
            ``(C) review the audit of a subrecipient as necessary to 
        determine whether prompt and appropriate corrective action has 
        been taken with respect to audit findings, as defined by the 
        Director, pertaining to Federal awards provided to the 
        subrecipient by the pass-through entity; and
            ``(D) require each of its subrecipients of Federal awards 
        to permit, as a condition of receiving Federal awards, the 
        independent auditor of the pass-through entity to have such 
        access to the subrecipient's records and financial statements 
        as may be necessary for the pass-through entity to comply with 
        this chapter.
    ``(g)(1) The auditor shall report on the results of any audit 
conducted pursuant to this section, in accordance with guidance issued 
by the Director.
    ``(2) When reporting on any single audit, the auditor shall include 
a summary of the auditor's results regarding the non-Federal entity's 
financial statements, internal controls, and compliance with laws and 
regulations.
    ``(h) The non-Federal entity shall transmit the reporting package, 
which shall include the non-Federal entity's financial statements, 
schedule of expenditures of Federal awards, corrective action plan 
defined under subsection (i), and auditor's reports developed pursuant 
to this section, to a Federal clearinghouse designated by the Director, 
and make it available for public inspection within the earlier of--
            ``(1) 30 days after receipt of the auditor's report; or
            ``(2)(A) for a transition period of at least 2 years after 
        the effective date of the Single Audit Act Amendments of 1996, 
        as established by the Director, 13 months after the end of the 
        period audited; or
            ``(B) for fiscal years beginning after the period specified 
        in subparagraph (A), 9 months after the end of the period 
        audited, or within a longer timeframe authorized by the Federal 
        agency, determined under criteria issued under section 7505, 
        when the 9-month timeframe would place an undue burden on the 
        non-Federal entity.
    ``(i) If an audit conducted pursuant to this section discloses any 
audit findings, as defined by the Director, including material 
noncompliance with individual compliance requirements for a major 
program by, or reportable conditions in the internal controls of, the 
non-Federal entity with respect to the matters described in subsection 
(e), the non-Federal entity shall submit to Federal officials 
designated by the Director, a plan for corrective action to eliminate 
such audit findings or reportable conditions or a statement describing 
the reasons that corrective action is not necessary. Such plan shall be 
consistent with the audit resolution standard promulgated by the 
Comptroller General (as part of the standards for internal controls in 
the Federal Government) pursuant to section 3512(c).
    ``(j) The Director may authorize pilot projects to test alternative 
methods of achieving the purposes of this chapter. Such pilot projects 
may begin only after consultation with the Chair and Ranking Minority 
Member of the Committee on Governmental Affairs of the Senate and the 
Chair and Ranking Minority Member of the Committee on Government Reform 
and Oversight of the House of Representatives.
``Sec. 7503. Relation to other audit requirements
    ``(a) An audit conducted in accordance with this chapter shall be 
in lieu of any financial audit of Federal awards which a non-Federal 
entity is required to undergo under any other Federal law or 
regulation. To the extent that such audit provides a Federal agency 
with the information it requires to carry out its responsibilities 
under Federal law or regulation, a Federal agency shall rely upon and 
use that information.
    ``(b) Notwithstanding subsection (a), a Federal agency may conduct 
or arrange for additional audits which are necessary to carry out its 
responsibilities under Federal law or regulation. The provisions of 
this chapter do not authorize any non-Federal entity (or subrecipient 
thereof) to constrain, in any manner, such agency from carrying out or 
arranging for such additional audits, except that the Federal agency 
shall plan such audits to not be duplicative of other audits of Federal 
awards.
    ``(c) The provisions of this chapter do not limit the authority of 
Federal agencies to conduct, or arrange for the conduct of, audits and 
evaluations of Federal awards, nor limit the authority of any Federal 
agency Inspector General or other Federal official.
    ``(d) Subsection (a) shall apply to a non-Federal entity which 
undergoes an audit in accordance with this chapter even though it is 
not required by section 7502(a) to have such an audit.
    ``(e) A Federal agency that provides Federal awards and conducts or 
arranges for audits of non-Federal entities receiving such awards that 
are in addition to the audits of non-Federal entities conducted 
pursuant to this chapter shall, consistent with other applicable law, 
arrange for funding the full cost of such additional audits. Any such 
additional audits shall be coordinated with the Federal agency 
determined under criteria issued under section 7504 to preclude 
duplication of the audits conducted pursuant to this chapter or other 
additional audits.
    ``(f) Upon request by a Federal agency or the Comptroller General, 
any independent auditor conducting an audit pursuant to this chapter 
shall make the auditor's working papers available to the Federal agency 
or the Comptroller General as part of a quality review, to resolve 
audit findings, or to carry out oversight responsibilities consistent 
with the purposes of this chapter. Such access to auditor's working 
papers shall include the right to obtain copies.
``Sec. 7504. Federal agency responsibilities and relations with non-
              Federal entities
    ``(a) Each Federal agency shall, in accordance with guidance issued 
by the Director under section 7505, with regard to Federal awards 
provided by the agency--
            ``(1) monitor non-Federal entity use of Federal awards, and
            ``(2) assess the quality of audits conducted under this 
        chapter for audits of entities for which the agency is the 
        single Federal agency determined under subsection (b).
    ``(b) Each non-Federal entity shall have a single Federal agency, 
determined in accordance with criteria established by the Director, to 
provide the non-Federal entity with technical assistance and assist 
with implementation of this chapter.
    ``(c) The Director shall designate a Federal clearinghouse to--
            ``(1) receive copies of all reporting packages developed in 
        accordance with this chapter;
            ``(2) identify recipients that expend $300,000 or more in 
        Federal awards or such other amount specified by the Director 
        under section 7502(a)(3) during the recipient's fiscal year but 
        did not undergo an audit in accordance with this chapter; and
            ``(3) perform analyses to assist the Director in carrying 
        out responsibilities under this chapter.
``Sec. 7505. Regulations
    ``(a) The Director, after consultation with the Comptroller 
General, and appropriate officials from Federal, State, and local 
governments and nonprofit organizations shall prescribe guidance to 
implement this chapter. Each Federal agency shall promulgate such 
amendments to its regulations as may be necessary to conform such 
regulations to the requirements of this chapter and of such guidance.
    ``(b)(1) The guidance prescribed pursuant to subsection (a) shall 
include criteria for determining the appropriate charges to Federal 
awards for the cost of audits. Such criteria shall prohibit a non-
Federal entity from charging to any Federal awards--
            ``(A) the cost of any audit which is--
                    ``(i) not conducted in accordance with this 
                chapter; or
                    ``(ii) conducted in accordance with this chapter 
                when expenditures of Federal awards are less than 
                amounts cited in section 7502(a)(1)(A) or specified by 
                the Director under section 7502(a)(3), except that the 
                Director may allow the cost of limited scope audits to 
                monitor subrecipients in accordance with section 
                7502(f)(2)(B); and
            ``(B) more than a reasonably proportionate share of the 
        cost of any such audit that is conducted in accordance with 
        this chapter.
    ``(2) The criteria prescribed pursuant to paragraph (1) shall not, 
in the absence of documentation demonstrating a higher actual cost, 
permit the percentage of the cost of audits performed pursuant to this 
chapter charged to Federal awards, to exceed the ratio of total Federal 
awards expended by such non-Federal entity during the applicable fiscal 
year or years, to such non-Federal entity's total expenditures during 
such fiscal year or years.
    ``(c) Such guidance shall include such provisions as may be 
necessary to ensure that small business concerns and business concerns 
owned and controlled by socially and economically disadvantaged 
individuals will have the opportunity to participate in the performance 
of contracts awarded to fulfill the audit requirements of this chapter.
``Sec. 7506. Monitoring responsibilities of the Comptroller General
    ``(a) The Comptroller General shall review provisions requiring 
financial audits of non-Federal entities that receive Federal awards 
that are contained in bills and resolutions reported by the committees 
of the Senate and the House of Representatives.
    ``(b) If the Comptroller General determines that a bill or 
resolution contains provisions that are inconsistent with the 
requirements of this chapter, the Comptroller General shall, at the 
earliest practicable date, notify in writing--
            ``(1) the committee that reported such bill or resolution; 
        and
            ``(2)(A) the Committee on Governmental Affairs of the 
        Senate (in the case of a bill or resolution reported by a 
        committee of the Senate); or
            ``(B) the Committee on Government Reform and Oversight of 
        the House of Representatives (in the case of a bill or 
        resolution reported by a committee of the House of 
        Representatives).
``Sec. 7507. Effective date
    ``This chapter shall apply to any non-Federal entity with respect 
to any of its fiscal years which begin after June 30, 1996.''.

SEC. 3. TRANSITIONAL APPLICATION.

    Subject to section 7507 of title 31, United States Code (as amended 
by section 2 of this Act), the provisions of chapter 75 of such title 
(before amendment by section 2 of this Act) shall continue to apply to 
any State or local government with respect to any of its fiscal years 
beginning before July 1, 1996.
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