[Congressional Record Volume 142, Number 24 (Tuesday, February 27, 1996)]
[Senate]
[Pages S1362-S1366]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GLENN (for himself, Mr. Stevens, Mr. Levin, Mr. Cochran, 
        Mr. Pryor, Mr. Cohen, Mr. Lieberman, and Mr. Brown):
  S. 1579. 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``); to the Committee on Governmental Affairs.


                the single audit act amendments of 1996

  Mr. GLENN. Mr. President, today, I am introducing legislation to 
amend the Single Audit Act of 1984. This legislation will both improve 
financial management of Federal funds and reduce paperwork burdens on 
State and local governments, universities and other nonprofit 
organizations that receive Federal assistance. I am happy that the 
chairman of the Governmental Affairs Committee, Senator Stevens, joins 
with me in cosponsoring the bill, as do Senators Levin, Cochran, Pryor, 
Cohen, Lieberman, and Brown, all fellow members of the Governmental 
Affairs Committee.
  Over the last several years we have made great strides in reforming 
the sloppy and wasteful state of Federal financial management. The 
Chief Financial Officers Act of 1990, which I strongly support, was a 
major accomplishment in this regard. Much more remains to be done, 
however, to achieve greater accountability for the hundreds of billions 
of dollars of Federal assistance that go to or through State and local 
governments and nonprofit organizations. Much more also remains to be 
done to reduce the auditing and reporting burdens of the Federal 
assistance management process. The Single Audit Act Amendments of 1996, 
which I introduce today, goes a long way toward achieving these goals.
  The Single Audit Act was enacted in 1984 to overcome serious gaps and 
duplications that existed in audit coverage over Federal funds provided 
to State and local governments, which now amount to about $200 billion 
a year. Some governments rarely saw an auditor interested in examining 
Federal funds, others were swamped by auditors, each looking at a 
separate grant award. The Single Audit Act remedied that problem by 
changing the audit focus from compliance with individual Federal grant 
requirements to a periodic single overall audit of the entity receiving 
Federal assistance. The act also set specific dollar thresholds to 
exempt small grant recipients from regular audit requirements. This 
structured approach of entity-wide audits simplified overlapping audit 
requirements and improved grantee-organization administrative controls.
  The Single Audit Act also served an important purpose of prompting 
State and local governments to improve their general financial 
management practices. The act encouraged the governments to review and 
revise their financial management practices, including instituting 
annual financial statement audits, installing new accounting systems, 
and implementing monitoring systems. The improvements represented long-
needed and long-lasting 

[[Page S1363]]
financial management reforms. Studies by the General Accounting Office 
[GAO] confirmed these accomplishments. The success of the act also 
prompted the Office of Management and Budget [OMB] to apply single 
audit principles to educational institutions and other nonprofits that 
receive or passthrough Federal funds (OMB Circular No. A-133, ``Audits 
of Institutions of Higher Education and Other Nonprofit 
Organizations,'' March 1990).
  During my tenure as chairman of the Governmental Affairs Committee, I 
requested that GAO study the implementation of the Single Audit Act and 
suggest any needed changes. The resulting report, Single Audit: 
Refinements Can Improve Usefulness (GAO/AIMD-94-133, June 1994), 
reviewed the successes of the act, but also pointed out specific 
modifications that could improve the act's usefulness. The legislation 
I introduce today is based on GAO's findings, and in fact, was 
developed in cooperation with GAO and OMB. Moreover, OMB is presently 
revising its Circular A-133 consistent with the purposes of this 
legislation. Finally, the bill also reflects comments received from 
State, local and private sector accounting, and audit professionals, as 
well as program managers. Altogether, the legislation will strengthen 
the act, while simultaneously reducing its burdens.
  First, the legislation extends the act to cover nonprofit entities 
that receive Federal assistance. Again, these organizations are 
currently subject to the single audit process under OMB Circular A-133. 
Broadening the act's coverage in this way ensures that all nonFederal 
grantee organizations will be covered uniformly by a single audit 
process.
  Second, the bill reduces audit and related paperwork burdens by 
raising the single audit threshold from $100,000 to $300,000. This 
would exempt thousands of smaller State and local governments and 
nonprofits from Federal single audit requirements. It would still 
ensure, however, that the vast majority of Federal funds would be 
subject to audit testing. Needless to say, it would also not interfere 
with the ability of Federal agencies to audit or investigate grantees 
when needed to safeguard Federal funds.
  Third, the bill would improve audit effectiveness by establishing a 
risk-based approach for selecting programs to be tested during single 
audits for adequacy of internal controls and compliance with Federal 
program requirements, such as eligibility rules. The Single Audit Act 
has required audit testing solely on the basis of dollar criteria. 
Using the risk-based approach will ensure coverage of large programs, 
as well as others that are actually more at risk.
  Fourth, the legislation improves the contents and timeliness of 
single audit reporting to make the reports more useful. Currently, 
auditors often include a number of different documents in a single 
audit report. These documents are designed to comply with auditing 
standards but leave many confused. A summary document, written in plain 
language, would greatly increase the usefulness of single audit 
reports.
  Shortening the reporting timeframes will also make the single audit 
reports more useful. The current practice of filing reports 13 months 
after the end of the year that was audited significantly reduces their 
utility. An ideal period would be the Government Finance Officers 
Association's standard of 6 months for timely reporting by State and 
local governments. However, given the multiple audits that some State 
auditors have to perform, the legislation establishes a 9-month 
standard. Moreover, the legislation gives flexibility for extensions as 
needed. The overall goal, still, is to shorten the reporting timeframe 
to make the single audit reports more useful to assess the stewardship 
of organizations entrusted with Federal funds and to prompt any needed 
corrective actions.
  Fifth, the legislation increases administrative flexibility. OMB is 
authorized to issue rules to implement the act and may revise certain 
audit requirements as needed, without seeking amendments to the act. 
For example, OMB would be authorized to raise even higher the $300,000 
threshold. Auditors also will have greater flexibility to target 
programs at risk.
  In these and other ways, the Single Audit Act Amendments of 1996 will 
streamline the underlying Single Audit Act, update its requirements, 
reduce burdens, and provide for more flexibility. This legislation 
builds on the significant accomplishments of the 1984 act and I am 
confident that the Senate will move the legislation expeditiously.
  In December 1995, the Senate Committee on Governmental Affairs held a 
hearing on the status of Federal financial management, including the 
Single Audit Act. Charles Bowsher, the Comptroller General of the 
United States and, Kurt Sjoberg, the California State auditor, 
representing the National State Auditors Association, strongly 
supported the legislation and recommended that it be enacted. Edward 
DeSeve, Office of Management and Budget Controller, also applauded the 
legislative effort.
  The support of the Comptroller General and the State auditors is 
especially important. The Comptroller General was instrumental in 
advising the Congress when the original Single Audit Act was enacted. 
He followed the subsequent implementation of the act and has made the 
recommendations for improving the act that was the basis for the 
current legislation. I give great weight to his recommendations for 
amending the Single Audit Act. State auditors, for their part, are key 
players in the single audit process. They conduct or arrange for 
thousands of single audits each year. So, their views are also 
critically important. Following the December hearing, the National 
State Auditors Association met to discuss the legislation and decided 
unanimously to support its enactment. I submit their letter of support 
for the Record.
  Finally, I commend to my colleagues the fact that this legislation is 
bipartisan. Again, Senator Stevens, chairman of the Governmental 
Affairs Committee, joins with me in cosponsoring the bill, as do 
Senators Levin, Cochran, Pryor, Cohen, Lieberman, and Brown. This 
bipartisanship also extends to the House of Representatives. With this 
bipartisan support, I am sure that this good Government legislation can 
soon become law.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.

                                S. 1579

       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, 

[[Page S1364]]
     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.
     
[[Page S1365]]

       ``(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 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
     
[[Page S1366]]

       ``(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.
                                                                    ____


                  Single Audit Act Amendments of 1996

       This bill amends the Single Audit Act of 1984 (P.L. 98-
     502). The 1984 Act replaced multiple grant-by-grant audits 
     with an annual entity-wide audit process for State and local 
     governments that receive Federal assistance. The new bill 
     would broaden the scope of the Act to cover universities and 
     other nonprofit organizations, as well. It would also 
     streamline the process. Thus, the bill would improve 
     accountability for hundreds of billions of dollars of Federal 
     assistance, while also reducing auditing and paperwork 
     burdens on grant recipients.
       The bill was developed on the basis of GAO review of 
     implementation of the Single Audit Act ``Single Audit: 
     Refinements Can Improve Usefulness,'' GAO/AIMD-94-133, June 
     21, 1994). Major stakeholders in the single audit process 
     were consulted during the drafting process. Support for the 
     bill was confirmed at a December 14, 1995, hearing of the 
     Senate Committee on Governmental Affairs.
       The 10 years' experience under the 1984 Act demonstrated 
     that the single audit concept promotes accountability over 
     Federal Assistance and prompts related financial management 
     improvements by covered entities. Experience also showed, 
     however, that process can be strengthened. This bill would 
     (1) improve audit coverage of federal assistance, (2) reduce 
     Federal burden on non-Federal entities, (3) improve audit 
     effectiveness, (4) improve single audit reporting, and (5) 
     increase administrative flexibility.


                         Improve Audit Coverage

       The bill would improve audit coverage of Federal assistance 
     by including in the single audit process all State and local 
     governments and nonprofit organizations that receive Federal 
     assistance. Currently, the Act only applies to State and 
     local governments. Nonprofit organizations are subject 
     administratively to single audits under OMB Circular A-133, 
     ``Audits of Institutions of Higher Education and Other 
     Nonprofit Organizations.'' -Including nonprofit organizations 
     under the Act would result in a common set of single audit 
     requirements for Federal assistance.


                         Reduce Federal Burden

       The bill would simultaneously reduce Federal burdens on 
     thousands of State and local governments and nonprofits, and 
     ensure audit coverage over the vast majority of Federal 
     assistance provided to those organizations. It would do so by 
     raising the dollar threshold for requiring a single audit 
     from $100,000 to $300,000. While this would relieve many 
     grantees of Federal single audit mandates, GAO estimated that 
     a $300,000 threshold would cover, for example, 95% of direct 
     Federal assistance to local governments. This is commensurate 
     with the coverage provided at the $100,000 threshold when the 
     Act was passed in 1984. Thus, exempting thousands of entities 
     from single audits would reduce audit and paperwork burdens, 
     but not significantly diminish the percentage of Federal 
     assistance covered by single audits.


                      Improve Audit Effectiveness

       The bill would improve audit effectiveness by directing 
     audit resources to the areas of greatest risk. Currently, 
     auditors must perform audit testing on the largest--but not 
     necessarily the riskiest--programs that an entity operates. 
     The bill would require auditors to assess the risk of the 
     programs an entity operates and select the riskiest programs 
     for testing. As the President of the National State Auditors 
     Association said, ``It makes good economic sense to 
     concentrate audits where increased corrective action and 
     recoveries are likely to result.''


                     Improve Single Audit Reporting

       The bill would greatly improve the usefulness of single 
     audit reports by requiring auditors to provide a summary of 
     audit results. The reports would also be due sooner--9 months 
     after the year-end rather than the current 13 months. 
     Interpretations of current rules lead auditors to include 7 
     or more separate reports in each single audit report. Such a 
     large number of reports tends to confuse rather than inform 
     users. A summary of the audit results would highlight 
     important information and thus enable users to quickly 
     discern the overall results of an audit. Federal managers 
     surveyed by GAO overwhelmingly support the summary reporting 
     and faster submission of reports.


                  Increase Administrative Flexibility

       The bill would enable the single audit process to evolve 
     with changing circumstances. For example, rather than lock 
     specific dollar amount audit thresholds into law, OMB would 
     have the authority to periodically revise the audit threshold 
     above the new $300,000 threshold. OMB also could revise 
     criteria for selecting programs for audit testing. By giving 
     OMB such authority, specific requirements within the single 
     audit process could be revised administratively to reflect 
     changing circumstances that affect accountability for Federal 
     financial assistance.


                   Conclusion: Good Government Reform

       Developed by GAO and endorsed by the National State 
     Auditors Association, the Single Audit Act Amendments of 1996 
     represents consensus good government legislation that will 
     improve accountability over Federal funds and reduce burdens 
     on State and local governments and nonprofit organizations.
                                                                    ____

                                                    National State


                                         Auditors Association,

                                  Baltimore, MD, January 29, 1996.
     Hon. John Glenn,
     Ranking Minority Member, Committee on Governmental Affairs, 
         U.S. Senate, Dirksen Senate Office Building, Washington, 
         DC.
       Dear Senator Glenn: The National State Auditors Association 
     has voted unanimously to support the proposed bill to amend 
     the Single Audit Act of 1984. My state audit colleagues and I 
     believe that the proposed legislation is an excellent measure 
     that deserves to be passed into law as soon as possible.
       The Single Audit Act amendments provide a unique 
     opportunity to address the needs of federal, state and local 
     government auditors and program managers. The original act is 
     over 10 years old and the amendments address many of the 
     changes that have occurred over the years in the auditing 
     profession and in government financial management. The bill 
     is the result of open and constructive dialog along the 
     stakeholders. Over the last several months, we have worked 
     closely with congressional staff as well as representatives 
     of the General Accounting Office and the Office of Management 
     and Budget. As currently drafted, the bill provides needed 
     improvements to financial accountability over federal grant 
     funds.
       While there are several excellent provisions in the amended 
     act, two are particularly noteworthy. First, the minimum 
     threshold of receipts requiring any entity to have a single 
     audit performed is raised in the bill to $300,000. Similarly, 
     the thresholds for larger recipients are also adjusted. These 
     modifications will relieve many state and local governments 
     of unnecessary federal mandates and generate savings of audit 
     costs. Second, the amendments allow federal and state 
     governments to focus audit resources on ``high-risk'' grants 
     where the potential for savings is the greatest. It makes 
     good economic sense to concentrate audits where increased 
     corrective action and recoveries are likely to result.
       In summary, the National State Auditors Association is 
     pleased to fully support the amendments to the Single Audit 
     Act of 1984 and assist you in any way possible to facilitate 
     its passage this year.
           Sincerely,
                                               Anthony Verdecchia,
                                                        President.
                                 ______