[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

[[Page S6295]]

     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

[[Page S6296]]

     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

[[Page S6297]]

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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