[Congressional Record Volume 142, Number 88 (Friday, June 14, 1996)]
[Senate]
[Pages S6294-S6302]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SINGLE AUDIT ACT AMENDMENTS OF 1996
Mr. MACK. Mr. President, I ask unanimous consent that the Senate
proceed to the immediate consideration of Calendar No. 401, S. 1579.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
A bill (S. 1579) to streamline and improve the
effectiveness of chapter 75 of title 31, United States Code
(commonly referred to as the ``Single Audit Act'').
The PRESIDING OFFICER. Is there objection to the immediate
consideration of the bill?
There being no objection, the Senate proceeded to consider the
bill, which had been reported from the Committee on Governmental
Affairs, with amendments; as follows:
(The parts of the bill intended to be stricken are shown in boldface
brackets and the parts of the bill intended to be inserted are shown in
italic.)
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, [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
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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
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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] 7504, 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.
Mr. STEVENS. Mr. President, the Single Audit Act Amendments of 1996
provide a useful updating of an important law enacted 12 years ago. The
original Single Audit Act of 1984 created a procedure by which a State
or local government receiving funds from several Federal assistance
programs would be subject only to one, comprehensive audit. A 1994 GAO
report on the intergovernmental experience under the act indicates that
it has resulted in both improved accountability over Federal assistance
and strengthened financial management in all covered entities. It has
done this while reducing the Federal audit burden on State and local
governments.
The GAO report, however, also indicated that the process can be
improved. And here I want to acknowledge the fine work of my colleague,
Senator Glenn, in having first requested the GAO study, and then having
worked with GAO to develop these amendments to the act. I am pleased to
have joined with Senator Glenn in cosponsoring his bill. It further
reduces the Federal audit burden on small governments, while improving
audit coverage
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and effectiveness by allowing auditors to focus on testing the riskiest
programs that a government operates.
At the hearing I held on S. 1579, there was strong support for this
legislation from the State auditors organization. The auditor from my
own State of Alaska has indicated his own support, and I know this will
be a real benefit to the local governments there, too. I urge my
colleagues to join us in moving this very useful legislation forward
today.
Mr. GLENN. Mr. President, I rise to urge my colleagues to support S.
1579, the Single Audit Act Amendments of 1996. This legislation amends
the Single Audit Act of 1984. It is a bipartisan good government bill
that 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 Government Affairs Committee, Senator
Stevens, joined with me in co-sponsoring the bill, as did Senators
Levin, Cochran, Pryor, Cohen, Lieberman, Brown and Grassley. The
legislation was reported unanimously by the Government Affairs
Committee. And we have an identical bill moving through the House of
Representatives--H.R. 3184, introduced by Representative Steve Horn.
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
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 $250 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 recipients that receive relatively small amounts of Federal
assistance from regular audit requirements. In passing the original
legislation, Congress considered the benefits and costs and developed
criteria that exposed the vast majority of Federal assistance to State
and local governments to audit coverage. 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 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] in 1990 to apply single audit principles to educational
institutions and other nonprofit organizations that receive or
passthrough Federal funds--OMB Circular No. A-133, ``Audits of
Institutions of Higher Education and Other Nonprofit Organizations,''
issued in March 1990, revised in April 1996.
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
we bring to the Senate today is based on GAO's findings as well as
studies by the President's Council on Integrity and Efficiency and
National State Auditors Association. The bill was developed in
cooperation with GAO and OMB. Moreover, OMB recently revised its
Circular A-133 consistent with the purposes of this legislation.
However, the circular continues to apply only to nonprofit
organizations--State and local governments are not covered. With the
passage of this legislation, OMB will be able to take the next step and
consolidate its grant audit requirements in one circular. 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
organizations 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 non-Federal grantee organizations will be covered uniformly by
one 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 will
exempt thousands of smaller State and local governments and nonprofit
organizations that receive relatively small amounts of Federal
assistance from Federal single audit requirements. It will still
ensure, however, that the vast majority of Federal funds will be
subject to audit testing. Needless to say, it will also reinforce the
ability of Federal agencies to audit or investigate grantees when
needed to safeguard Federal funds.
Third, the bill will 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 of participants and
allowability of costs. The Single Audit Act has required audit testing
solely on the basis of dollar criteria. Using a risk-based approach
will ensure coverage of programs that present the highest risk to the
Federal Government.
Fourth, the legislation improves the contents and timeliness of
single audit reporting to make the reports more useful. Currently,
auditors often include many different documents in a single audit
report. These documents are designed to comply with auditing standards
but leave users confused. A summary document, written in plain
language, would greatly increase the usefulness of single audit
reports. Report users would be able to quickly discern which entities
are having problems administering Federal programs and consequently
need additional oversight.
Shortening the reporting time frame 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 numerous audits that some State
auditors have to perform, the legislation establishes a 9-month
standard. Moreover, the legislation establishes a 2-year transition
period for entities to comply with the faster reporting and gives
flexibility for extensions as needed. The overall goal, still, is to
shorten the reporting time frame 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 will 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
[[Page S6298]]
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 my colleagues will agree that this legislation should be
broadly supported by the Senate.
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, and Kurt
Sjoberg, the California State Auditor who represented 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. The President's Council on
Integrity and Efficiency Audit Committee also submitted a letter in
support of the legislation. I ask that their letters of support be
included in the Record.
On April 18, 1996, the Committee on Government Affairs marked up S.
1579 and voted unanimously to send the bill to the floor for a vote.
Again, this bi-partisanship also extends to the House of
Representatives, where an identical bill (H.R. 3184) was introduced on
March 28, 1996 by Representative Horn and four cosponsors. The House of
Representatives Committee on Government Reform and Oversight voted the
bill out of committee on April 25, 1996. With this bipartisan support,
I am sure that this good Government legislation can soon become law.
In closing, let me just say that good Government legislation such as
the Single Audit Act Amendments of 1996 is often overlooked and
discounted. It is unimportant to many, boring to most. But it is just
this sort of nuts and bolts legislation that is needed to improve the
efficiency and effectiveness of our Government. The end result of
enactment of S.. 1579 will be a Government more accountable to its
people.
To reach this point, we have had the help of colleagues on each side
of the aisle, as I have said. We have also had the assistance of, and
need to thank, the Comptroller General, Charles Bowsher, and his
staff--most especially, Jerry Skelly--we would not be here today
without Jerry's tireless work. I'd also like to thank Kurt Sjoberg, the
California State Auditor, Woody Jackson, OMB's Deputy Controller, John
Mercer with Senator Stevens, Anna Miller on Representative Horn's
staff, and David Plocher on my staff--all have contributed greatly to
this legislation.
I urge my colleagues to support this legislation.
Mr. President, again, I ask unanimous consent that letters of
endorsement of S. 1579 from the National State Auditors Association and
the Audit Committee of the President's Council on Integrity and
Efficiency, as well as a summary of the legislation be printed in the
Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
National State
Auditors Association,
Washington, DC, January 29, 1996.
Hon. John Glenn,
Ranking Minority Member, Committee on Governmental Affairs,
U.S. Senate, 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 among 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 an 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.
____
President's Council on
Integrity and Efficiency,
Washington, DC, March 12, 1996.
Hon. John Glenn,
Ranking Minority Member, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
Dear Senator Glenn: The Audit Committee of the President's
Council on Integrity and Efficiency (PCIE) is pleased to
extend its support for Senate Bill S. 1579, ``Single Audit
Act Amendments of 1996.'' We believe that the improvements to
the Single Audit Act of 1984 contained in this bill will
result in significantly more effective and efficient auditing
of Federal program funds at State and local governments and
non-profit organizations and we urge that it be passed as
soon as possible.
The Single Audit Act of 1984 is over 11 years old. In 1993
the PCIE issued a report entitled, Study on Improving the
Single Audit Process. In that report we concluded that while
the Act was successful in achieving its objectives, changes
were needed to further improve the auditing and financial
management of Federal program funds. The report contained a
number of specific recommendations for changes to the Single
Audit Act of 1984, related Office of Management and Budget
Circulars and other implementing guidance from the auditing
profession. We are pleased to see that all of our
recommendations that require legislative change have been
addressed in the proposed amendments.
Of the many improvements contained in the bill, we believe
the most far-reaching are the provisions for a ``risk-based''
approach to determining audit coverage. These provisions will
allow auditors to concentrate their audits on the areas of
highest risk, rather than auditing the same programs every
year based solely on funding level, regardless of risk. We
believe that these provisions, along with other provisions
shortening the due dates for adults and providing additional
flexibilities, will result in much more effective audit
coverage and more useful audit reports for Federal and
grantee program managers.
In summary, the PCIE Audit Committee fully supports the
bill and recommends that it be passed as soon as possible.
Sincerely,
Valerie Lau,
Chair, Audit Committee.
____
Single Audit Act Amendments of 1996 (S. 1579)
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 following 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 Government Affairs. The bill was
introduced on February 27, 1996, by Senator Glenn, and co-
sponsored by Senators Stevens, Levin, Cochran, Pryor, Cohen,
Lieberman, Brown, and Grassley. The bill was reported out of
the Committee on Governmental Affairs on April 18, 1996. An
[[Page S6299]]
identical bill (H.R. 3184) was under consideration at the
same time by the House of Representatives Committee on
Governmental Reform and Oversight.
Ten years' experience under the 1984 Act has been proven
that the single audit concept promotes accountability over
Federal assistance and prompts financial management
improvements. Study also showed, however, that the process
can be strengthened. This bill would (1) improve audit
coverage of Federal assistance, (2) reduce burdens 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. Now, auditors must perform audit testing on an
entity's largest--but not necessarily the riskiest--programs.
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.
The Single Audit Act Amendments of 1996 (S. 1579) is ``Good
Government'' legislation. Based on GAO studies and endorsed
by the National State Auditors Association, the bill
represents consensus reform legislation that will improve
accountability over Federal funds and reduce burdens on State
and local governments and nonprofit organizations.
Mr. LEVIN. Mr. President, as a cosponsor of the Single Audit Act
amendments, I am pleased that the Senate is considering this
legislation today. S. 1579 would improve accountability over Federal
assistance provided to State and local governments.
The Single Audit Act of 1984 created a uniform requirement for
Federal audits of individual State and local programs which received
Federal assistance. It also provided a comprehensive, organizationwide
approach to single audits. While the act has been a key factor in the
improvement of government financial management practices, we have
learned alot since the enactment of the act and the passage of time has
revealed the need for changes.
This bill amends the 1984 act to further reduce unnecessary audit
burdens on State and local governments and nonprofit organizations
while ensuring accountability and oversight of the use of Federal
funds.
The bill would place State and local governments, colleges and
universities, and other nonprofit grantees under the same single audit
process. This would allow the Office of Management and Budget to
develop uniform guidelines and auditing requirements.
Second, the bill increases the dollar threshold that triggers the
requirement for a single audit, from $100,000 to $300,000. This change
would reduce audit costs while only minimally reducing audit coverage
of Federal program expenditures. We would be able to still achieve the
goal of 95 percent audit coverage, which was originally included in the
1984 act.
Third, the bill establishes a risk-based approach to determine which
Federal programs should be audited to allow the Federal, State, and
local auditors the discretion of focusing audit resources where the
potential for return is the greatest.
Fourth, the bill improved the contents and timeliness of single audit
reports by requiring a summary of audit findings and results and by
reducing the report due-date from 13 to 9 months to improve the
timeliness of report submission. A report prepared closer to the end of
the reporting period together with the shorter reporting requirement to
submit a summary of audit findings and results will increase the
utility of the audit to senior management and Federal program
officials.
Finally, the bill authorizes the Director of the Office of Management
and Budget to expand and revise audit requirements to ensure continued
effectiveness of the audit process. This change would allow the Office
of Management and Budget to adjust auditing thresholds for future
inflation, and also allow auditors to assess program and management
performance.
Mr. President, I would like to thank Senator Glenn for his leadership
on this issue and my colleagues for their support and cooperation in
getting this bill to the floor. I would also like to thank the National
State Auditors Association, the President's Council on Integrity and
Efficiency, and the General Accounting Office for conducting the
independent survey to assess the 1984 act and to determine how it could
be improved. Their study results were instrumental in developing this
legislation.
Mr. MACK. Mr. President, I ask unanimous consent that the committee
amendments be agreed to, the bill, as amended, be deemed read three
times, passed, the motion to reconsider be laid upon the table, and
that any statements relating thereto appear at an appropriate place in
the Record as if read.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
The bill (S. 1579), as amended, was deemed read the third time and
passed, as follows:
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--
[[Page S6300]]
``(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, 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
[[Page S6301]]
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 7504, 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.
[[Page S6302]]
``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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