[House Report 104-607]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-607
_______________________________________________________________________


 
                  SINGLE AUDIT ACT AMENDMENTS OF 1996
                                _______


  June 6, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


  Mr. Clinger, from the Committee on Government Reform and Oversight, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 3184]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Government Reform and Oversight, to whom was 
referred the bill (H.R. 3184) to streamline and improve the 
effectiveness of chapter 75 of title 31, United States Code 
(commonly referred to as the ``Single Audit Act''), having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Background and Need for the Legislation..........................8
 II. Legislative Hearings and Committee Actions......................11
III. Committee Hearings and Written Testimony........................11
 IV. Explanation of the Bill.........................................14
  V. Compliance with Rule XI.........................................29
 VI. Budget Analysis and Projections.................................29
VII. Cost Estimate of the Congressional Budget Office................29
VIII.Inflationary Impact Statement...................................31

 IX. Changes in Existing Law.........................................31
  X. Committee Recommendation........................................46
 XI. Congressional Accountability Act: Public Law 104-1..............46

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

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, food commodities, 
        direct appropriations, or other assistance, but does not 
        include amounts received as reimbursement for services rendered 
        to individuals in accordance with guidance issued by the 
        Director;
          ``(6) `Federal program' means all Federal awards to a non-
        Federal entity assigned a single number in the Catalog of 
        Federal Domestic Assistance or encompassed in a group of 
        numbers or other category as defined by the Director;
          ``(7) `generally accepted government auditing standards' 
        means the government auditing standards issued by the 
        Comptroller General;
          ``(8) `independent auditor' means--
                  ``(A) an external State or local government auditor 
                who meets the independence standards included in 
                generally accepted government auditing standards; or
                  ``(B) a public accountant who meets such independence 
                standards;
          ``(9) `Indian tribe' means any Indian tribe, band, nation, or 
        other organized group or community, including any Alaskan 
        Native village or regional or village corporation (as defined 
        in, or established under, the Alaskan Native Claims Settlement 
        Act) that is recognized by the United States as eligible for 
        the special programs and services provided by the United States 
        to Indians because of their status as Indians;
          ``(10) `internal controls' means a process, effected by an 
        entity's management and other personnel, designed to provide 
        reasonable assurance regarding the achievement of objectives in 
        the following categories:
                  ``(A) Effectiveness and efficiency of operations.
                  ``(B) Reliability of financial reporting.
                  ``(C) Compliance with applicable laws and 
                regulations;
          ``(11) `local government' means any unit of local government 
        within a State, including a county, borough, municipality, 
        city, town, township, parish, local public authority, special 
        district, school district, intrastate district, council of 
        governments, any other instrumentality of local government and, 
        in accordance with guidelines issued by the Director, a group 
        of local governments;
          ``(12) `major program' means a Federal program identified in 
        accordance with risk-based criteria prescribed by the Director 
        under this chapter, subject to the limitations described under 
        subsection (b);
          ``(13) `non-Federal entity' means a State, local government, 
        or nonprofit organization;
          ``(14) `nonprofit organization' means any corporation, trust, 
        association, cooperative, or other organization that--
                  ``(A) is operated primarily for scientific, 
                educational, service, charitable, or similar purposes 
                in the public interest;
                  ``(B) is not organized primarily for profit; and
                  ``(C) uses net proceeds to maintain, improve, or 
                expand the operations of the organization;
          ``(15) `pass-through entity' means a non-Federal entity that 
        provides Federal awards to a subrecipient to carry out a 
        Federal program;
          ``(16) `program-specific audit' means an audit of one Federal 
        program;
          ``(17) `recipient' means a non-Federal entity that receives 
        awards directly from a Federal agency to carry out a Federal 
        program;
          ``(18) `single audit' means an audit, as described under 
        section 7502(d), of a non-Federal entity that includes the 
        entity's financial statements and Federal awards;
          ``(19) `State' means any State of the United States, the 
        District of Columbia, the Commonwealth of Puerto Rico, the 
        Virgin Islands, Guam, American Samoa, the Commonwealth of the 
        Northern Mariana Islands, and the Trust Territory of the 
        Pacific Islands, any instrumentality thereof, any multi-State, 
        regional, or interstate entity which has governmental 
        functions, and any Indian tribe; and
          ``(20) `subrecipient' means a non-Federal entity that 
        receives Federal awards through another non-Federal entity to 
        carry out a Federal program, but does not include an individual 
        who receives financial assistance through such awards.
  ``(b) In prescribing risk-based program selection criteria for major 
programs, the Director shall not require more programs to be identified 
as major for a particular non-Federal entity, except as prescribed 
under subsection (c) or as provided under subsection (d), than would be 
identified if the major programs were defined as any program for which 
total expenditures of Federal awards by the non-Federal entity during 
the applicable year exceed--
          ``(1) the larger of $30,000,000 or 0.15 percent of the non-
        Federal entity's total Federal expenditures, in the case of a 
        non-Federal entity for which such total expenditures for all 
        programs exceed $10,000,000,000;
          ``(2) the larger of $3,000,000, or 0.30 percent of the non-
        Federal entity's total Federal expenditures, in the case of a 
        non-Federal entity for which such total expenditures for all 
        programs exceed $100,000,000 but are less than or equal to 
        $10,000,000,000; or
          ``(3) the larger of $300,000, or 3 percent of such total 
        Federal expenditures for all programs, in the case of a non-
        Federal entity for which such total expenditures for all 
        programs equal or exceed $300,000 but are less than or equal to 
        $100,000,000.
  ``(c) When the total expenditures of a non-Federal entity's major 
programs are less than 50 percent of the non-Federal entity's total 
expenditures of all Federal awards (or such lower percentage as 
specified by the Director), the auditor shall select and test 
additional programs as major programs as necessary to achieve audit 
coverage of at least 50 percent of Federal expenditures by the non-
Federal entity (or such lower percentage as specified by the Director), 
in accordance with guidance issued by the Director.
  ``(d) Loan or loan guarantee programs, as specified by the Director, 
shall not be subject to the application of subsection (b).

``Sec. 7502. Audit requirements; exemptions

  ``(a)(1)(A) Each non-Federal entity that expends a total amount of 
Federal awards equal to or in excess of $300,000 or such other amount 
specified by the Director under subsection (a)(3) in any fiscal year of 
such non-Federal entity shall have either a single audit or a program-
specific audit made for such fiscal year in accordance with the 
requirements of this chapter.
  ``(B) Each such non-Federal entity that expends Federal awards under 
more than one Federal program shall undergo a single audit in 
accordance with the requirements of subsections (b) through (i) of this 
section and guidance issued by the Director under section 7505.
  ``(C) Each such non-Federal entity that expends awards under only one 
Federal program and is not subject to laws, regulations, or Federal 
award agreements that require a financial statement audit of the non-
Federal entity, may elect to have a program-specific audit conducted in 
accordance with applicable provisions of this section and guidance 
issued by the Director under section 7505.
  ``(2)(A) Each non-Federal entity that expends a total amount of 
Federal awards of less than $300,000 or such other amount specified by 
the Director under subsection (a)(3) in any fiscal year of such entity, 
shall be exempt for such fiscal year from compliance with--
          ``(i) the audit requirements of this chapter; and
          ``(ii) any applicable requirements concerning financial 
        audits contained in Federal statutes and regulations governing 
        programs under which such Federal awards are provided to that 
        non-Federal entity.
  ``(B) The provisions of subparagraph (A)(ii) of this paragraph shall 
not exempt a non-Federal entity from compliance with any provision of a 
Federal statute or regulation that requires such non-Federal entity to 
maintain records concerning Federal awards provided to such non-Federal 
entity or that permits a Federal agency, pass-through entity, or the 
Comptroller General access to such records.
  ``(3) Every 2 years, the Director shall review the amount for 
requiring audits prescribed under paragraph (1)(A) and may adjust such 
dollar amount consistent with the purposes of this chapter, provided 
the Director does not make such adjustments below $300,000.
  ``(b)(1) Except as provided in paragraphs (2) and (3), audits 
conducted pursuant to this chapter shall be conducted annually.
  ``(2) A State or local government that is required by constitution or 
statute, in effect on January 1, 1987, to undergo its audits less 
frequently than annually, is permitted to undergo its audits pursuant 
to this chapter biennially. Audits conducted biennially under the 
provisions of this paragraph shall cover both years within the biennial 
period.
  ``(3) Any nonprofit organization that had biennial audits for all 
biennial periods ending between July 1, 1992, and January 1, 1995, is 
permitted to undergo its audits pursuant to this chapter biennially. 
Audits conducted biennially under the provisions of this paragraph 
shall cover both years within the biennial period.
  ``(c) Each audit conducted pursuant to subsection (a) shall be 
conducted by an independent auditor in accordance with generally 
accepted government auditing standards, except that, for the purposes 
of this chapter, performance audits shall not be required except as 
authorized by the Director.
  ``(d) Each single audit conducted pursuant to subsection (a) for any 
fiscal year shall--
          ``(1) cover the operations of the entire non-Federal entity; 
        or
          ``(2) at the option of such non-Federal entity such audit 
        shall include a series of audits that cover departments, 
        agencies, and other organizational units which expended or 
        otherwise administered Federal awards during such fiscal year 
        provided that each such audit shall encompass the financial 
        statements and schedule of expenditures of Federal awards for 
        each such department, agency, and organizational unit, which 
        shall be considered to be a non-Federal entity.
  ``(e) The auditor shall--
          ``(1) determine whether the financial statements are 
        presented fairly in all material respects in conformity with 
        generally accepted accounting principles;
          ``(2) determine whether the schedule of expenditures of 
        Federal awards is presented fairly in all material respects in 
        relation to the financial statements taken as a whole;
          ``(3) with respect to internal controls pertaining to the 
        compliance requirements for each major program--
                  ``(A) obtain an understanding of such internal 
                controls;
                  ``(B) assess control risk; and
                  ``(C) perform tests of controls unless the controls 
                are deemed to be ineffective; and
          ``(4) determine whether the non-Federal entity has complied 
        with the provisions of laws, regulations, and contracts or 
        grants pertaining to Federal awards that have a direct and 
        material effect on each major program.
  ``(f)(1) Each Federal agency which provides Federal awards to a 
recipient shall--
          ``(A) provide such recipient the program names (and any 
        identifying numbers) from which such awards are derived, and 
        the Federal requirements which govern the use of such awards 
        and the requirements of this chapter; and
          ``(B) review the audit of a recipient as necessary to 
        determine whether prompt and appropriate corrective action has 
        been taken with respect to audit findings, as defined by the 
        Director, pertaining to Federal awards provided to the 
        recipient by the Federal agency.
  ``(2) Each pass-through entity shall--
          ``(A) provide such subrecipient the program names (and any 
        identifying numbers) from which such assistance is derived, and 
        the Federal requirements which govern the use of such awards 
        and the requirements of this chapter;
          ``(B) monitor the subrecipient's use of Federal awards 
        through site visits, limited scope audits, or other means;
          ``(C) review the audit of a subrecipient as necessary to 
        determine whether prompt and appropriate corrective action has 
        been taken with respect to audit findings, as defined by the 
        Director, pertaining to Federal awards provided to the 
        subrecipient by the pass-through entity; and
          ``(D) require each of its subrecipients of Federal awards to 
        permit, as a condition of receiving Federal awards, the 
        independent auditor of the pass-through entity to have such 
        access to the subrecipient's records and financial statements 
        as may be necessary for the pass-through entity to comply with 
        this chapter.
  ``(g)(1) The auditor shall report on the results of any audit 
conducted pursuant to this section, in accordance with guidance issued 
by the Director.
  ``(2) When reporting on any single audit, the auditor shall include a 
summary of the auditor's results regarding the non-Federal entity's 
financial statements, internal controls, and compliance with laws and 
regulations.
  ``(h) The non-Federal entity shall transmit the reporting package, 
which shall include the non-Federal entity's financial statements, 
schedule of expenditures of Federal awards, corrective action plan 
defined under subsection (i), and auditor's reports developed pursuant 
to this section, to a Federal clearinghouse designated by the Director, 
and make it available for public inspection within the earlier of--
          ``(1) 30 days after receipt of the auditor's report; or
          ``(2)(A) for a transition period of at least 2 years after 
        the effective date of the Single Audit Act Amendments of 1996, 
        as established by the Director, 13 months after the end of the 
        period audited; or
          ``(B) for fiscal years beginning after the period specified 
        in subparagraph (A), 9 months after the end of the period 
        audited, or within a longer timeframe authorized by the Federal 
        agency, determined under criteria issued under section 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.

                      Short Summary of Legislation

    This bill amends the Single Audit Act of 1984 (P.L. 98-502) 
to reduce the burden on State and local governments and 
nonprofit organizations and improve the effectiveness of 
oversight of Federal assistance.
    The ``Single Audit Act Amendments of 1996'' (H.R. 3184) 
amends the Single Audit Act of 1984 (P.L. 98-502). The 1984 Act 
replaced multiple grant-by-grant audits of Federal assistance 
programs with an annual entity-wide audit process for State and 
local governments that receive Federal financial assistance. 
H.R. 3184 streamlines the Act, updates its requirements, and 
provides for more flexibility both in compliance and 
administration. The bill's major reforms would:
          1. Enhance Audit Coverage.--The bill would enhance 
        single audit coverage and simplify Federal rules by 
        placing State and local governments and colleges and 
        universities and other nonprofit grantees under the 
        same single audit process.
          2. Reduce Burdens.--The bill would raise the single 
        audit threshold from $100,000 to $300,000. It would 
        also eliminate the $25,000 threshold for requiring that 
        entities either have the financial audits required by 
        the laws governing Federal financial assistance or a 
        single audit under the Act. These changes would reduce 
        audit and paperwork burdens, while preserving audit 
        coverage of the vast majority of Federal assistance.
          3. Increase Audit Effectiveness.--The bill would 
        establish a risk-based approach for selecting programs 
        for detailed audit testing, rather than relying solely 
        on dollar criteria.
          4. Improve Single Audit Reporting.--The bill would 
        improve the contents and timeliness of single audit 
        reports to make them more useful.
          5. Increase Administrative Flexibility.--The bill 
        would provide more flexibility for the Office of 
        Management and Budget (OMB) to revise specific 
        requirements within the single audit statutory 
        framework.
    In sum, the legislation would improve accountability for 
hundreds of billions of dollars of Federal assistance, while at 
the same time reducing auditing and paperwork burdens on grant 
recipients.

               I. Background and Need for the Legislation

A. Background

    The Single Audit Act of 1984 (the Act) was designed to 
improve accountability over the Federal assistance provided 
annually to State and local governments, which was 
approximately $225 billion for fiscal year 1995. The Act 
established a structured approach of entity-wide audits to 
simplify overlapping audit requirements and improve grantee-
organization administrative controls. This change eliminated 
serious gaps in audit coverage and reduced duplication of audit 
effort.
    The Act also prompted improvements in State and local 
governments' financial management over Federal assistance. The 
Act did so by placing responsibilities on the audited entities 
and their auditors. For example, it requires entities to 
prepare financial statements, arrange for an audit, and develop 
corrective action plans to resolve audit findings. The Act 
requires auditors to expand a traditional financial statement 
audit to include additional testing of the entity's internal 
controls over Federal programs and the entity's compliance with 
requirements for those programs.
    The Act is built on the premise that prevention, rather 
than detection, of problems is of utmost importance. 
Consequently, the auditor reporting on internal controls over 
Federal assistance and the entity developing corrective action 
plans to fix problems are particularly important features. Over 
time, such actions will lead to fewer problems involving the 
administration of Federal assistance and strengthened 
accountability over such assistance.
    The Congress established a $100,000 threshold in the 1984 
Act, based upon the amount of Federal assistance an entity 
received during a year either directly from the Federal 
Government or passed through another non-Federal entity, to 
determine whether an entity would be required to have a single 
audit. The threshold of $100,000 for requiring a single audit 
was based on the premise that 95 percent of direct Federal 
assistance to local governments would be subject to audit. An 
entity that receives $25,000 to $100,000 must arrange for 
either a financial audit or a financial and compliance audit in 
accordance with the laws and regulations governing the Federal 
programs under which it receives financial assistance, or a 
comprehensive single audit of the entire entity. Many entities 
that receive $25,000 to $100,000 opt for a single audit. Since 
the thresholds are established in the Act, they can only be 
changed by amending the Act.
    Single audits are designed to give program managers and 
others reasonable assurance about an entity's management of 
Federal programs and, when necessary, to provide the foundation 
for other oversight activities, including program manager 
reviews, additional audits, or investigations. The Act 
specifically preserves Federal agencies' rights to build on the 
results of single audits, including the right to review and 
obtain copies of auditors' working papers for purposes 
consistent with the intent of the Act.

B. Legislative history

    Prior to the passage of the Single Audit Act, multiple 
grant-by-grant audits had produced inefficiency and duplication 
of audit efforts. There was a myriad of overlapping, 
inconsistent, and duplicative Federal requirements for audits 
of individual programs. The Single Audit Act eliminated this 
disparate approach, replacing it with a comprehensive, 
organization-wide approach to the audit (hence the term 
``single audit''). It also provides uniform requirements for 
the single audit.
     The Single Audit Act of 1984 required the Director of the 
Office of Management and Budget (OMB) to prescribe policies, 
procedures, and guidelines to implement the Act. OMB Circular 
A-128, ``Audits of State and Local Governments,'' (Circular A-
128) provides this guidance. During Congressional consideration 
of the Single Audit Act, Congress agreed to exclude most 
colleges and universities from coverage under the Single Audit 
Act of 1984. In return, OMB agreed to develop an audit policy 
for colleges and universities, and at the request of the 
Inspectors General, agreed to extend these audit policies to 
other nonprofit organizations not covered by Circular A-128. In 
1990 OMB issued Circular A-133, ``Audits of Institutions of 
Higher Education and Other Non-Profit Organizations,'' 
(Circular A-133) which used the single audit approach and 
provided guidance for an organization-wide audit of these 
organizations.
    OMB issued a revised Circular A-133 on April 19, 1996. The 
circular, effective for fiscal years ending on or after June 
30, 1997, is consistent with the provisions of H.R. 3184 except 
that State and local governments are not included. If H.R. 3184 
becomes law, OMB plans to revise the circular to provide 
uniform guidance for both State and local governments and 
nonprofit recipients of Federal assistance, effectively 
eliminating the need for Circular A-128.
    On January 29, 1996 Mr. Anthony Verdecchia, President of 
the National State Auditors Association and Legislative Auditor 
of Maryland, submitted a letter to Representative Horn, 
Chairman of the Subcommittee on Government Management, 
Information, and Technology stating that ``. . . the 
Association has voted unanimously to support the proposed bill 
to amend the Single Audit Act of 1984''. Mr. Verdecchia's 
letter also stated that ``. . . the proposed legislation is an 
excellent measure that deserves to be passed into law as soon 
as possible.'' On February 12, 1996, Mr. Ronald Jones, Chief 
Examiner of Public Accounts, State of Alabama, sent a letter to 
Representative Horn urging support of the proposed amendments. 
He stated that the proposed revisions would reduce burdens on 
State and local governments and nonprofit organizations and 
would promote the efficient and effective use of audit 
resources. The legislation was also endorsed by Valerie Lau, 
Audit Committee Chair of the President's Council on Integrity 
and Efficiency, which comprises Federal agency Inspectors 
General who are Presidentially appointed; Milton Goldberg, 
President of the Council on Governmental Relations; Carmen 
Delgado Votaw, Chair of the Human Services Forum on 
Governmental Relations (an affinity group of the National 
Assembly of National Voluntary Health and Welfare 
Organizations); Charles L. Lester, Auditor General of the State 
of Florida; and Barbara Hafer, Auditor General of the 
Commonwealth of Pennsylvania.
    On March 28, 1996, Representative Horn introduced H.R. 
3184, co-sponsored by Representatives Clinger, Davis, Maloney 
and Peterson of Minnesota.

C. Need for the legislation

    Followingits enactment in 1984, some problems with the 
Single Audit Act emerged. The $100,000 threshold resulted in 
approximately 98 percent of Federal assistance being audited, 
instead of the 95 percent that it was intended to cover. Also, 
program managers were concerned because the single audits did 
not appear to provide much detailed coverage of their 
particular programs, especially if the dollar amount was such 
that the program was not considered to be a major program.
    In 1990, the General Accounting Office began a study of the 
effectiveness of the Single Audit Act at the request of the 
Senate Committee on Governmental Affairs and issued a report 
entitled ``Single Audit--Refinements Can Improve Usefulness'' 
in June 1994. The purposes of the study were to illustrate the 
influence of the Act on the financial management practices of 
State and local governmental entities receiving Federal funds; 
identify issues that burden the current single audit process 
and limit the usefulness of the single audit reports; and 
develop workable solutions to improve the single audit process.
    The standards subcommittee of the President's Council on 
Integrity and Efficiency (PCIE), released its ``Study on 
Improving the Single Audit Process'' in September 1993. Single 
audit participants (Federal, State and local program managers, 
State auditors, independent public accountants, and Inspectors 
General) had raised concerns about some aspects of single audit 
implementation, and in response, the PCIE sent out 
questionnaires and developed a report from the results. All 
groups agreed that the single audit had improved the approach 
to auditing Federal assistance.
    The National State Auditors Association (NSAA) also 
conducted a survey of its members in 1991, and used the results 
of that survey to develop a position paper, released in 1993. 
The survey found that NSAA members thought the Act was an 
effective piece of legislation that improves overall 
accountability and internal controls over Federal funds, and 
provides an effective mechanism to determine compliance with 
applicable Federal program laws and regulations. NSAA believed 
the Act provided information to Federal program managers in a 
cost effective manner and strengthened general fiscal 
accountability through all levels and units of government.
    The results of these studies indicated that the Single 
Audit Act is working, and has caused improvements in financial 
management practices. However, the studies also indicated that 
a number of issues burden the single audit process, hinder the 
usefulness of the reports required by it, and limit its impact. 
They all agreed that changes could improve the implementation 
of the Act.
    In December 1995, the Senate Committee on Governmental 
Affairs held a hearing at which witnesses testified regarding 
the need to improve the single audit process. On February 27, 
1996, Senator Glenn introduced a bill, S. 1579, Single Audit 
Act Amendments of 1996, which takes into account the 
recommendations presented in the studies.

             II. Legislative Hearings and Committee Actions

    Representative Horn, Chairman of the House Subcommittee on 
Government Management, Information, and Technology, introduced 
H.R. 3184 on March 28, 1996. The Subcommittee held a 
legislative hearing on March 29, 1996.
    The bill was marked up in the Subcommittee on Government 
Management, Information, and Technology on April 18, 1996. Two 
amendments were offered. One, offered by Subcommittee Chairman 
Horn, was a technical correction to correct an error in a 
section reference. The second, offered by Ranking Minority 
Member Maloney, was a technical amendment to strike duplicative 
wording related to the definition of property from the 
definitions section. Both amendments were considered and 
adopted by voice vote without objection. The legislation, as 
amended, passed the Subcommittee unanimously by voice vote.
    The House Committee on Government Reform and Oversight met 
on April 24, 1996, to consider H.R. 3184. The bill was 
favorably reported to the House of Representatives unanimously 
by voice vote and without amendment by the full Committee.

             III. Committee Hearings and Written Testimony

    On March 29, 1996, the Subcommittee on Government 
Management, Information, and Technology of the Committee on 
Government Reform and Oversight, met pursuant to notice. The 
purpose of the hearing was to solicit comments from interested 
parties on H.R. 3184, the ``Single Audit Act Amendments of 
1996.'' Witnesses testified concerning what the Single Audit 
Act of 1984 had achieved; the benefits of the Act; the reasons 
changes were needed; what the Single Audit Act Amendments of 
1996 would do, and the anticipated benefits of the amendments. 
In addition, several witnesses mentioned that the amendments 
would aid compliance with the government-wide audit 
requirements of the Government Management Reform Act of 1994 
(P.L. 103-356).
    Subcommittee Chairman Horn stated at the opening of the 
hearing that the bill provided administrative flexibility to 
current statutory requirements and allowed a more efficient and 
cost-effective audit approach. The passage of the legislation 
would reduce unnecessary audit burdens on recipients of Federal 
assistance while ensuring that accountability for the use of 
Federal funds is maintained. Representative Maloney expressed 
her support for the legislation. Representative Peterson, 
stated that the Single Audit Act had served a good purpose and 
noted that it needed to be updated. He cited a concern with the 
provision in the bill that allowed Federal agencies or the 
Comptroller General the right to obtain copies of working 
papers in order to build upon the work done under the Single 
Audit Act.
    All of the witnesses testifying at the hearing agreed that 
the amendments would maintain accountability for Federal 
assistance, and supported the enhanced flexibility provided in 
the amendments.
    Mr. Edward DeSeve, Controller, Office of Federal Financial 
Management, Office of Management and Budget (OMB), emphasized 
the importance to the Federal Government of having assurance 
that programs are being carried out in accordance with 
statutory requirements, and that they are being managed 
economically and efficiently by grantees. Mr. DeSeve supported 
the addition of nonprofit organizations and shortening the time 
frame for submission of reports. He suggested that increasing 
the threshold and providing the Director of OMB with authority 
to reassess the threshold periodically and increase it if 
necessary would be an improvement.
    Mr. Gene Dodaro, Assistant Comptroller General, General 
Accounting Office, emphasized that, even with the threshold 
being raised, entities that are not required to have an audit 
will still be required to maintain accurate records and reports 
and could be subject to regular monitoring. He noted that the 
amendments enjoy wide support among the Federal and State audit 
community and many other interested parties. He stated that 
reducing the deadline for completing audits from thirteen 
months to nine months took into account current conditions, 
while allowing those organizations that could complete the 
audits sooner to do so. Mr. Dodaro suggested that the 
requirement to have a report summary would eliminate the need 
for program managers to have to wade through multiple reports 
and try to ferret out the significant findings. He added that 
this would enhance the usefulness of the reports.
    The GAO strongly supported the amendments that would allow 
auditors to build upon the audits already completed by allowing 
access to working papers and the right to obtain copies of 
those working papers. Mr. Dodaro, during questioning, explained 
that such requests should be part of a targeted approach to 
build upon prior audit work, to eliminate the need for 
duplication of effort, and enhance efficiency in audits. He 
noted that this was the intent of the 1984 Act. This access was 
not intended to allow auditors to make blanket requests for 
copies of all working papers. The Committee notes that there 
have been some problems in the past with Federal audit 
reviewers not being able to obtain copies of the working papers 
they needed.
    Mr. Randy Main, Vice President and Chief Financial Officer 
of the Fred Hutchinson Cancer Research Institute and 
representing the Association of Independent Research 
Institutes, stated that the amendments would further reduce 
unnecessary duplication of effort. He noted that H.R. 3184 
would give greater flexibility to grantees when monitoring 
subrecipients, that is, organizations that receive ``pass-
through'' Federal funds from the original grantee. Mr. Main 
hoped that OMB and nonprofit organizations could work together 
to develop reasonable audit standards for the monitoring of 
subrecipients. The Committee is aware that the subrecipient 
monitoring described in the proposed legislation could present 
problems for smaller organizations that pass through Federal 
funds to other organizations. OMB should in promulgating the 
legislation take into consideration various methods of 
accomplishing the objective of subrecipient monitoring.
    Mr. Anthony Verdecchia, Legislative Auditor of Maryland, 
testified that the National State Auditors Association, of 
which he is president, unanimously supports the proposed 
legislation to amend the Single Audit Act of 1984. He stated in 
his oral testimony that, ``The proposed legislation is nothing 
less than good government legislation developed by consensus.'' 
The NSAA provided input through its study issued in 1993 and, 
through its single audit committee, by working with the 
drafters of this legislation. He cited the amendments as an 
excellent example of what a cooperative Federal-State 
partnership can accomplish.
    Mr. Kurt Sjoberg, California State Auditor and Chairman, 
Single Audit Committee, National State Auditors Association 
cited the threshold increase, the change in definition of a 
major grant, the risk-based auditing option, and the option to 
conduct performance audits as major benefits of the proposed 
legislation. California has been doing performance audits since 
1969 and has four pilot departments that use performance-based 
budgeting. He cited California's own experience in which nine 
dollars had been returned to the State for every dollar 
invested in a performance audit.
    In response to a question from Representative Maloney about 
possible waivers to the nine month audit completion deadline, 
Mr. Sjoberg explained that, while some States would require 
immense and very expensive effort to comply with the nine month 
requirement, all were committed to working towards that goal. 
In fact, several witnesses embraced an eventual goal of six 
months. They noted that several years were necessary to reach 
the goal of more timely audits, and Mr. Verdecchia pointed out 
that there was a two year phase-in period for the nine month 
requirement.
    In response to questioning from Mr. Horn, Mr. Sjoberg 
explained that the concept of a build-upon audit, a concept on 
which the Single Audit is based, could not work if the follow-
on auditor could not review and obtain copies of the working 
papers.
    Mr. Ted Sheridan, President, Sheridan Management Corp., 
representing the Financial Executives Institute, was of the 
opinion that since the private sector gets its audit reports 
completed in six months or less, that consideration should be 
given to shortening the time for submission of the single audit 
reports. He acknowledged that this may have to be done over 
time. Regarding access to working papers and obtaining copies 
of working papers, in his experience, when auditors ask for 
copies, they generally receive them. There may be situations, 
however, when pages describing proprietary computer programs 
may be requested, and in those situations the auditor should 
respect the fact that these descriptions are proprietary. He 
added that there ought to be a legitimate reason for the 
auditor to want copies of the working papers requested. He 
suggested that the clearinghouse referred to in H.R. 3184 which 
receives the single audit reports should consider entering them 
into a database and allowing access to the reports 
electronically.
    The Subcommittee also received written testimony from the 
President's Council on Integrity and Efficiency (PCIE), and the 
Council on Governmental Relations (the Council), an 
organization of research universities. The PCIE expressed its 
support for the inclusion of nonprofits under the Act, the 
risk-based approach, the report timing, the additional 
flexibilities provided to OMB, and the clarification of working 
paper access. The Council welcomed the bill because it reduces 
duplication of effort and overlapping requirements for both 
Federal agencies and recipients of Federal awards. Two 
provisions of H.R. 3184 which the Council found especially 
welcome were the flexibility provided to OMB to streamline the 
audit process, and the designation of a Federal agency which 
will assist and advise the grantee rather than act as a 
``cognizant'' agency. A ``cognizant agency'' means a Federal 
agency which is assigned by the Director of OMB with the 
responsibility for implementing the requirements of chapter 75 
of title 31 U.S.C. with respect to a particular State or local 
government. H.R. 3184 eliminates the definition of a cognizant 
agency and the responsibilities that the cognizant agency had, 
and instead requires that each non-Federal entity be matched 
with a Federal agency which can provide it with technical 
assistance and assist with implementations of chapter 75. There 
had been confusion concerning the correct designation of and 
responsibilities of cognizant agencies, and the amendment 
provides better clarification of a Federal agency's 
responsibility to a grantee.

                      IV. Explanation of the Bill

                              A. Overview

    The Single Audit Act Amendments of 1996 would change the 
Act in five important ways. It would: (1) enhance audit 
coverage of Federal assistance; (2) reduce Federal audit 
burdens on State and local governments and universities and 
other nonprofit grantee organizations; (3) increase audit 
effectiveness through a risk-based approach for audit testing; 
(4) improve the content, timeliness, and utility of single 
audit reporting; and (5) increase administrative flexibility to 
modify single audit requirements as conditions change.

1. Enhance audit coverage

    The bill would enhance 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.
    The provisions of Circular A-133 differ in several respects 
from the Act. For example, different dollar criteria are used 
to determine which programs must be tested. For entities that 
expend between $100,000 and $100,000,000 in Federal financial 
assistance, a major program under the Act is one for which 
program expenditures exceed the greater of $300,000 or three 
percent of the entity's expenditures. A major program under 
Circular A-133 is one for which the nonprofit organization 
expends the greater of $100,000 or three percent of the 
organization's Federal program expenditures. Furthermore, there 
are differences between Circular A-133 and the Act with respect 
to the definition of a single program and the election of a 
program-specific audit rather than a single audit if the 
organization administers only one program.
    Including nonprofit organizations under the Act would 
result in there being only one set of audit requirements if 
Federal assistance is involved. Thus, Federal assistance would 
be subject to the same audit provisions regardless of whether 
it is administered by a State or local government or a 
nonprofit organization. Consequently, auditors would no longer 
be faced with different provisions for conducting single audits 
depending simply on the type of organization that is audited.

 2. Reduce Federal burden

    The bill would simultaneously reduce the Federal burden on 
thousands of State and local governments and nonprofit 
organizations and their auditors, yet 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. The 
NSAA raising the dollar threshold for requiring a single audit 
from $100,000 to $300,000. The NSAA noted that the higher 
threshold would relieve many State and local governments of 
Federal audit mandates. Nonetheless, GAO estimated that a 
$300,000 threshold would cover 95 percent of direct Federal 
assistance to local governments. The 95 percent coverage is 
commensurate with the coverage planned 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. 
Entities whose Federal expenditures are less than the $300,000 
audit threshold are exempt from Federally mandated financial 
audit coverage but they still must comply with Federal 
requirements to maintain records and permit access to records.
    The bill would eliminate the $25,000 threshold which 
requires entities to have a financial audit or a financial and 
compliance audit in accordance with the laws governing each 
Federal financial assistance program the entity administers. 
Thus, the Act would be simplified by having only one audit 
threshold. Further, entities that expend more than $300,000 in 
Federal financial assistance would be allowed to arrange for a 
program-specific audit if the expenditures are under only one 
Federal program.

3. Increase audit effectiveness

    The bill would increase audit effectiveness by directing 
audit resources to the areas of greatest risk. The National 
State Auditors Association (NSAA), the President's Council on 
Integrity and Efficiency and the General Accounting Office all 
support adoption of a risk-based program selection approach. 
Currently, auditors must perform audit testing on the largest--
but not necessarily the riskiest--programs that an entity 
administers. The bill would require auditors to assess the risk 
of an organization's programs and select the riskiest programs 
for testing. As Anthony Verdecchia, president of NSAA, stated, 
``It makes good economic sense to concentrate audits where 
increased corrective action and recoveries are likely to 
result.''
    The Act's original program selection criteria was highly 
effective in ensuring that significant proportions of Federal 
assistance were subjected to audit testing. The criteria 
addressed only dollar amounts. Typically, a few programs 
account for most of the Federal assistance funding. However, 
using a dollar-based criterion means that the same large 
programs are likely to be tested each year, and the great 
majority of programs, which individually are not large in 
dollar terms, are unlikely ever to be tested. In 1994, GAO 
reported that in a sample of single audit reports, only 17 
percent of the 526 Federal programs operated by 210 State and 
local governments met the program selection criteria. But those 
programs contributed over 90 percent of the $15 billion of 
Federal expenditures for those governments. Adoption of a risk-
based program selection approach would allow auditors to use 
their professional judgment and target audit resources at the 
areas presenting the greatest risk to the Federal Government. 
Over time, a greater proportion of programs will be selected 
for testing.
    The risk-based program selection approach is subject to a 
limitation on the number of programs that must be tested during 
an audit. The limitation is designed to preclude a significant 
increase in the number of programs tested due to the adoption 
of a risk-based program selection approach. As described above, 
only a small percentage of programs qualify for testing under 
the current dollar-driven program selection approach. For a 
large entity, such as a State Government, hundreds of Federal 
programs may have received little or no auditor faced with the 
prospect of having to test many more programs than would have 
been tested under the dollar-driven approach.
    The limitation on the number of programs to be tested is 
based on the amount of the non-Federal entity's total Federal 
expenditures and the dollar size of the program. The auditor 
must determine the number of programs that would meet the 
dollar criteria specified in H.R. 3184, which then represents 
the maximum number of programs to be tested. However, the 
auditor is not required to test the specific programs that make 
up this number. The auditor can substitute programs selected 
under the risk-based approach. For example, if an entity 
operated 60 Federal programs and 20 of those programs met the 
dollar criterion, then the auditor would have to test a maximum 
of 20 programs. However, the determination of which programs to 
test would be based upon risks as discussed above.
    H.R. 3184 allows the Director of the Office of Management 
and Budget to establish criteria under which a group of related 
programs, such as research and development, student financial 
aid, or school breakfast and lunch programs, could be 
considered a single program for audit purposes. Such 
combinations of similar programs would produce efficiencies in 
the audit testing of Federal assistance.
    Auditors are required to test the internal controls and 
compliance with laws and regulations that the entity has 
established for the programs that provide at least 50 percent 
of the entity's Federal expenditures, or a lesser amount 
established by the OMB Director. Internal controls are intended 
to help prevent problems from occurring. Compliance testing 
includes determining whether the entity complied with specific 
program requirements, such as participant eligibility and 
allowability of costs. The results of such tests provide 
important insights about the entity's management of the 
programs.
    Single audits are intended to facilitate--not inhibit--
other oversight activities, including program reviews, 
additional audits, and investigations of suspect grantees. 
Single audits will not answer all questions about an entity's 
stewardship of Federal programs. Rather, when the audits 
identify problems with the entity's internal controls, 
compliance with laws or regulations, or its financial 
management activities, they can provide leads which prompt 
follow-on oversight.
    Program managers can benefit from single audit reports even 
if their programs are not tested during the audit. The results 
of testing of other Federal programs can provide insights into 
the entity's stewardship over Federal assistance, and the 
findings can directly result in other audits. For example, the 
Office of Inspector General of the Department of Health and 
Human Service conducted audits based upon leads in single audit 
reports. Those additional audits identified $360 million in 
cost containment recommendations.
    Effective use of single audits is largely dependent upon 
the ability of Federal agencies to have access to the auditors' 
working papers which describe the scope of the work and 
document the results of the work, including any problems found. 
H.R. 3184 reinforces the Federal Government's right to review 
and obtain copies of working papers. Such access is necessary 
for the efficient planning of additional build-upon audit work, 
to assess the quality of the auditors' work, and to resolve 
audit findings. The ability to gain access to the working 
papers and to make copies is important to help Federal agencies 
use the single audit results in carrying out oversight of 
Federal programs in the most efficient and effective manner and 
to assess the quality of the work conducted by non-Federal 
auditors.
    During the April 24th consideration of the bill by the 
Committee on Government Reform and Oversight, Representative 
Peterson voiced concerns about the provision allowing Federal 
reviewers to obtain copies of working papers. He stated that 
although the provision is appropriate as it relates to Federal 
programs and to the Act, the provision could be interpreted to 
require auditors to make available working papers that apply to 
activities not subject to the Act. These activities could 
include commercial transactions. His concern was that, in some 
circumstances, these working papers might contain information 
which the auditee considered proprietary. He hoped that Federal 
audit reviewers would be sensitive to this situation.
    In response, Subcommittee Chairman Horn noted his agreement 
that Federal reviewers should be sensitive to an auditor's 
request for confidentiality when asked to provide copies of 
working papers, unless they had reason to believe it was 
covering up some malfeasance.
    It is the Committee's intent that Federal agencies be 
judicious in the exercise of the authority for reviewing and 
obtaining copies of non-Federal auditor working papers and that 
release of the working papers should not compromise the 
confidentiality of proprietary information. It is also the 
Committee's intent that Federal agencies recognize that working 
papers may contain trade secrets and confidential commercial 
and financial information. Any such information obtained from 
the working papers should be treated as confidential under the 
Freedom of Information Act.

4. 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 which would explain results and findings in clear 
English. The NSAA position paper on the Single Audit Act, 
described in Sec. I.C. of this committee report, stated that 
``. . . the complexity of the reports makes it difficult for 
the average reader to understand what has been audited and 
reported.'' Interpretations of current rules lead auditors to 
include seven or more separate reports in each single audit 
report. Such a large number of separate reports tends to 
confuse rather than to 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. The 
summary information would supplement rather than supplant the 
detailed supporting information in the auditors' reports that 
would be needed to resolve audit findings. Federal managers 
surveyed by GAO for the 1994 GAO report on the effectiveness of 
the Single Audit Act, described in Sec. I.C. of this 
committee report, overwhelmingly supported the summary 
reporting. They said that summary reporting would save them 
time and enable them to quickly focus on any problems the 
auditors found.
    The reports would also be due sooner--nine months after the 
completion of the fiscal year rather than thirteen months as 
currently required. The timing of the single audit reports was 
the subject of debate. Federal managers that GAO surveyed 
strongly supported a shorter time frame of six months. State 
auditors, who conduct thousands of single audits each year, 
expressed concern about their ability to complete the audits in 
the originally proposed time frame but agreed to that the nine-
month time frame would allow for thorough examinations.
    H.R. 3184 contains two provisions to ameliorate the impact 
on the auditors of shortening the reporting time frame. First, 
it requires OMB to establish a transition period of not less 
than two years for entities to comply with the new reporting 
time frame. Second, it authorizes Federal agencies to grant 
waivers to the shortened time frame, if they conclude that such 
a request is reasonable.
    The Committee notes that Comptroller General Bowsher, in 
his December 14, 1995 testimony before the Senate Committee on 
Governmental Affairs, stated that ``. . . oversight of the 
hundreds of billions of Federal dollars covered by the single 
audit process is degraded by reports that are issued more than 
a year after the end of the period audited. Over time, I hope 
that it will be the rule, rather than the exception, for the 
audit reports to be submitted in less than 9 months.''

5. Increase administrative flexibility

    H.R. 3184 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 revise the audit threshold every two 
years. However, the threshold cannot be lower than the $300,000 
established in this legislation.
    The OMB Director could revise criteria for selecting 
programs for audit testing. The risk-based program selection 
criteria that OMB would be required to develop under the 
legislation may need to be changed if Federal programs and 
funding approaches change. For example, changes in Federal 
programs to establish standards based on results and outcomes 
rather than on process and compliance with regulations may 
necessitate new selection criteria.
    The OMB Director would also be authorized to permit pilot 
projects to test alternative ways of achieving the goals of the 
single audit process. For example, OMB could permit a State 
auditor to employ different criteria in using a risk-based 
approach to select programs for testing, such as selecting a 
program under a Federal/State performance partnership 
agreement. The pilot projects would not be OMB-mandated. 
Rather, it is anticipated that non-Federal entities and their 
auditors would propose projects. Additionally, the OMB Director 
would be required to establish criteria for findings that must 
be reported in single audit reports. Auditors and program 
managers welcome such a change. Currently, auditors must report 
all findings--regardless of the significance of the issue or 
amount of questioned costs that may be involved. For example, 
documenting and resolving an inconsequential finding, such as a 
$25 questioned cost or the filing of a Federal report one day 
after it is due, is expensive and of limited utility in the 
management of Federal programs.
    The bill would delete the requirement that the OMB Director 
specifically designate the Federal agencies that were to act as 
``cognizant agencies'' for non-Federal grantees. Rather than 
make specific designations of agencies to provide technical 
assistance, the OMB Director would be required to prescribe 
criteria for determining such agencies. The revised approach 
would enable Federal agencies, non-Federal entities and their 
auditors to determine the appropriate Federal agency without 
having to rely on the OMB Director to make specific 
assignments.
    H.R. 3184 authorizes the OMB Director to designate a 
clearinghouse to accept copies of audit reports prepared in 
accordance with the Act, to identify those grantees that are 
subject to the Act but that have not submitted the required 
single audit reports, and to conduct studies to assist the 
Director. The Director should share information on grantees 
that have not complied with the audit provisions of the Act 
with Federal funding agencies. The Federal funding agencies 
should take appropriate steps to require the non-Federal 
entities to comply with the audit provisions. The Director 
should consider developing guidance that would enforce the 
requirement that Federal funding agencies follow up on those 
entities that are subject to the Single Audit Act requirements 
but are not submitting reports to the clearinghouse.
    By giving OMB authority to revise specific requirements 
within the statutory single audit framework to reflect changing 
circumstances that affect accountability for Federal 
assistance, the single audit process can maintain its 
effectiveness.
    H.R. 3184 relieves the OMB Director of submitting an annual 
report to the Congress on implementation of the Single Audit 
Act. However, the Director would still be expected to apprise 
the Congress with respect to problems that arise in 
implementing the Act's provisions, such as listing entities 
that habitually fail to comply with the requirements of the Act 
and which ignore reminders from the clearinghouse or the 
Federal funding agency. Such notification could be accomplished 
under other OMB reporting to the Congress, such as the 
``Federal Financial Management Status Report and Five-Year 
Plan'' report which is required by the Chief Financial Officers 
Act.

6. Good Government reform

    The Committee believes that the Single Audit Act of 1984 
has provided a solid foundation for ensuring accountability for 
the more than $200 billion provided State and local governments 
each year by the Federal government. The Act has prompted 
financial management improvements by those entities. Studies by 
the GAO, the PCIE, and the NSAA have confirmed this judgment. 
These studies, however, have also identified areas where the 
single audit process can be strengthened while reducing the 
Federal burden on State and local governments and nonprofit 
organizations.
    H.R. 3184 reflects a consensus among various stakeholders, 
such as the GAO, OMB, and the Federal and state auditor 
community as to specific changes to improve the 1984 Act. 
Accordingly, the legislation expands the Act's scope, raises 
the single audit threshold, establishes a risk-based approach 
to audit testing, improves the usefulness of reporting, 
increases administrative flexibility, and otherwise updates and 
streamlines the Act.

                     B. Section-by-section analysis

Section 1. Short title; purposes

    Section 1 states the purposes of the Single Audit Act 
Amendments of 1996: to promote sound financial management, 
including effective internal controls, with respect to Federal 
awards administered by non-Federal entities; establish uniform 
requirements for audits of Federal awards administered by non-
Federal entities; promote the efficient and effective use of 
audit resources; reduce burdens on State and local governments, 
Indian tribes, and nonprofit organizations; and 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 the 
Act).

Section 2. Amendment to title 31, United States Code

    This section replaces chapter 75 of title 31, United States 
Code, which was established under the Single Audit Act of 1984. 
As a result of the substantive changes to chapter 75 made by 
the Single Audit Act Amendments of 1996, some reorganization 
and technical changes also were necessary. The substantive 
changes are discussed below.

Section 7501. Definitions

    Amendments to section 7501 reflect the new terms used in 
the Act as well as some technical changes to terms retained in 
the Act. Most of these changes are self-explanatory. The 
definitions now contained in subsection (a) are discussed 
below.
    Paragraph (1) `Comptroller General;' is unchanged from 
current law.
    Paragraph (2) `Director;' is unchanged from current law.
    Paragraph (3) modifies the definition of `Federal agency' 
to delete a citation to the United States Code.
    Paragraph (4) defines `Federal awards' to reflect the 
decision for the Single Audit Act to cover certain nonprofit 
organizations. The use of the term `Federal awards' and its 
definition here to include cost-reimbursement contracts as well 
as Federal financial assistance is in response to the fact that 
nonprofit organizations often receive much of their funding 
through cost-reimbursement contracts for research and 
development activities.
    Paragraph (5) modifies the definition of `Federal financial 
assistance' to change the focus from the Federal agency that 
provides the assistance to the non-Federal entity that receives 
the assistance. As amended, `Federal financial assistance' also 
includes food commodities and other assistance and excludes 
amounts received as reimbursement for services rendered to 
individuals in accordance with guidance issued by the Director 
of the Office of Management and Budget (OMB). The Director has 
the authority to prescribe methods of valuation of property 
provided to non-Federal entities that are fair, realistic and 
practical. The Director also has the discretion to determine 
whether the indefinite loan of property qualifies as Federal 
financial assistance under the Act.
    One issue that has been of interest to the Committee is 
that of valuation of Federal assistance in the form of property 
either donated or loaned. Federal surplus property under the 
General Services Administration's surplus property donation 
program is distributed on a nationwide basis through individual 
State agencies for surplus property. Recipients are local 
governments and non-profit tax-exempt educational and public 
health organizations. Under other programs, an agency may 
acquire property that has been determined excess by the 
original owning agency so the acquiring agency may lend it to 
certain local public bodies. In those cases, the property does 
not become surplus and so is not available for the donation 
program. In the case of such a loan, possession of the property 
is given to the recipient without charge, usually on a 
permanent basis. Also, some statutory programs that operate 
apart from the General Services Administration authorize an 
agency to transfer by gift to certain local entities unneeded 
personal property that is not formally excess.
    The Single Audit Act and OMB Circular A-128 are silent as 
to how such property should be valued. The revised OMB Circular 
A-133 does provide guidance, stating that the property should 
be valued at either fair market value at the time of receipt or 
the assessed value provided by the Federal agency. For most 
recipients, estimating fair market value is not practical. 
Using the agency-assessed value may become a disincentive for 
the recipient, because in some cases, such as with the General 
Services Administration's donation program, the value is set at 
a fixed percentage of the original acquisition cost of the item 
and therefore may be quite high in relation to its value to the 
recipient. The revised Circular A-133 also contains a 
duplicative reference to ``donated surplus property'' in the 
definition of Federal financial assistance.
    It is the intent of the Committee that the Director of the 
Office of Management and Budget should provide fair and 
realistic guidance in the matter of valuation of property for 
purposes of the Single Audit Act and should amend the 
definition of Federal financial assistance to delete the 
reference to ``donated surplus property'' to conform to the 
definition in H.R. 3184.
    Paragraph (6) defines `Federal program' to mean 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 of Federal awards as defined 
by the Director. The use of this term in the Act and its 
definition here is intended to give the Director the 
flexibility to facilitate more efficient audit testing by 
having related programs grouped as a single program.
    Paragraph (7) modifies the definition of `generally 
accepted government auditing standards' to reflect terminology 
in the 1994 version of Government Auditing Standards issued by 
the Comptroller General.
    Paragraph (8) `independent auditor;' is unchanged from 
current law.
    Paragraph (9) `Indian tribe;' is unchanged from current 
law.
    Paragraph (10) changes the definition of `internal 
controls' to reflect recent agreements in the financial 
management community on a common definition of internal 
controls, and to provide a standard against which non-Federal 
entities can assess and determine how to improve their 
controls. The definition is consistent with the definition of 
internal control contained in ``Internal Control--Integrated 
Framework'' issued in 1992 by the Committee of Sponsoring 
Organizations of the Treadway Commission and subsequently 
adopted by ``Statement of Auditing Standards No. 78'' issued in 
December 1995 by the Auditing Standards Board, American 
Institute of Certified Public Accountants. These sources should 
be consulted for a full description and discussion of internal 
controls.
    Paragraph (11) reflects a modification in the definition of 
`local government' that is intended to increase audit 
efficiency by allowing the Director to specify criteria for 
allowing the grouping of local governments for audit purposes.
    Paragraph (12) reflects a change in the definition of a 
`major program' from one based on size to one identified 
according to risk-based criteria prescribed by the Director. 
The determination of what Federal programs are ``major'' is 
important because the testing of major programs during single 
audits is required. In contrast to the current dollar-driven 
approach under which the same programs are likely to be tested 
year after year, the risk-based program selection approach will 
allow auditors to use their professional judgment and target 
audit resources at the areas presenting the greatest risk to 
the Federal government. Authorizing the Director to prescribe 
criteria will allow for changes as conditions warrant.
    Paragraph (13) adds a definition of `non-Federal entity' to 
address all the entities subject to the Act with one term. 
Under current law, State and local governments are subject to 
the Single Audit Act. Nonprofit organizations are 
administratively subject to the single audit process under OMB 
Circular A-133, ``Audits of Institutions of Higher Education 
and Other Nonprofit Organizations.'' Amending the Act to 
include nonprofit organizations as well as State and local 
governments will help to ensure uniformity of audits and reduce 
the burden on the auditing community by placing all non-Federal 
entities that receive Federal awards under the same single 
audit requirements.
    Paragraph (14) adds a definition of `nonprofit 
organization' to make clear which entities would be affected by 
expanding the Act to cover nonprofit organizations.
    Paragraph (15) adds a definition of `pass-through entity' 
to describe a non-Federal entity that receives a Federal award 
that it then provides to a subrecipient to carry out a Federal 
program.
    Paragraph (16) defines `program-specific audit' to mean an 
audit of one Federal program. The term is used elsewhere in the 
Act to describe audits that may be conducted under certain 
circumstances in lieu of a single audit.
    Paragraph (17) defines `recipient' to mean a non-Federal 
entity that receives awards directly from a Federal agency to 
carry out a Federal program. This term was used, but not 
defined, in Public Law 98-502.
    Paragraph (18) defines `single audit' to mean an audit of a 
non-Federal entity that includes both the entity's financial 
statements and Federal awards. This term was used, but not 
defined, in Public Law 98-502.
    Paragraph (19) `State' is unchanged from current law.
    Paragraph (20) modifies the original definition of 
`subrecipient' to include nonprofit organizations under the 
term ``non-Federal entity.''
    The definition of `cognizant agency' is omitted from 
section 7501. The term is no longer used in the Act and instead 
section 7504 requires the Director to prescribe criteria for 
determining which agencies would provide technical assistance 
and assist non-Federal entities in complying with the 
requirements of the single audit process. The definition of 
`generally accepted accounting principles' is omitted because 
it is a widely understood term.
    The definition of `public accountants' is also omitted in 
favor of a definition of `independent auditor.' The former 
definition of public accountants required that they meet the 
qualification standards included in generally accepted 
government auditing standards. That requirement is maintained 
because the Act states in section 7502(c) that audits conducted 
under the Act shall be conducted by an independent auditor in 
accordance with generally accepted government auditing 
standards which describe auditor qualification requirements.
    Section 7501 also is amended by adding subsections (b)-(d), 
which establish parameters for the number of programs that will 
be identified as `major' under the risk-based criteria and 
therefore subject to testing.
    Under subsection (b), a non-Federal entity's expenditures 
for each Federal award is compared with a dollar threshold 
based on the entity's total expenditures for all Federal 
programs. The number of programs exceeding that threshold 
serves as a cap on the number of programs that may be required 
to be tested as major programs under the Director's risk-based 
selection criteria. This provision is designed to ensure that a 
significant increase in the number of programs tested does not 
result from the change from a dollar-driven approach to a risk-
based approach.
    Subsection (c) sets forth a minimum testing requirement 
that 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, the auditor 
must 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. This subsection 
also authorizes the Director to lower the percentage of Federal 
expenditures that major programs must provide, enabling the 
Director to reduce the audit burden on entities that have had 
good audit results.
    Subsection (d) provides that in making the calculations 
required by section 7501(b), loan or loan guarantee programs as 
specified by the Director will be excluded. Because they can be 
so large, including loan or loan guarantee programs in the 
section 7501(b) calculation of total expenditures for all 
Federal programs would in some cases significantly increase the 
section 7501(b) threshold and reduce the number of programs for 
``cap'' purposes. This could result in reducing the number of 
programs that would be classified as major for a particular 
non-Federal entity. Therefore, under subsection (d), the 
Director may provide for the exclusion of loan or loan 
guarantee programs in determining the section 7501(b) cap when 
their inclusion would cause a reduction in the number of 
programs identified as major.

Section 7502. Audit requirements; exemptions

    Section 7502(a) will substitute a single dollar threshold 
of $300,000 for determining which entities must receive audits 
under the Act in place of the multiple, lower thresholds 
contained in current law. The basis of the threshold is also 
changed from receipts to expenditures, to ensure that the audit 
will be conducted for the fiscal period during which the non-
Federal entity used the Federal awards.
    Subsection (a)(1) requires non-Federal entities that expend 
$300,000 or more in Federal awards under more than one program 
to have a single audit. Non-Federal entities that expend 
$300,000 or more in Federal awards under only one program, and 
are not required to otherwise have a financial statement audit, 
may elect to have a program-specific audit consistent with 
guidance prescribed by the Director. Subsection (a)(2) exempts 
non-Federal entities expending a total amount of Federal awards 
less than $300,000 from complying with all Federal financial 
audit requirements. Subsection (a)(3) requires the Director to 
review the threshold every two years and allows the Director to 
adjust it as necessary, provided that the threshold may not be 
less than $300,000. This minimum threshold is a significant 
increase over the thresholds in current law.
    Under current law, entities that receive $100,000 or more 
in Federal financial assistance in a year are required to have 
a single audit, even if they administer only one program, and 
entities receiving $25,000 to $100,000 in Federal financial 
assistance must have either a single audit or a financial audit 
in accordance with the laws governing each Federal financial 
assistance program that the entity administers.
    Subsection (b)(1) states the requirement for annual audits 
under the Act. However, subsection (b)(2) preserves State and 
local governments' rights established under the original Act 
to, under specified circumstances, have biennial rather than 
annual audits. Similarly, subsection (b)(3) preserves nonprofit 
organizations' rights established under OMB Circular A-133 to, 
under specified circumstances, have biennial rather than annual 
audits. However, subsection (b) prohibits other non-Federal 
entities from adopting biennial audits. Thus, this subsection 
preserves, but does not extend, the prerogative to have 
biennial audits.
    Subsection (c) requires the audits to be conducted by an 
independent auditor and in accordance with generally accepted 
government auditing standards. It would also allow the Director 
to authorize audits of information on program performance, 
which are excluded by current law. This change reflects the 
increased attention to performance of Federal programs and is 
consistent with the objectives of the Government Performance 
Results Act of 1993 which is intended to, among other things, 
initiate program performance reform in part by setting program 
goals, measuring program performance against the goals, and 
reporting publicly on the progress. Auditors can play an 
important role in assessing the reliability of the reported 
performance information.
    Several provisions contained in current law are ineffective 
or unnecessary, and are eliminated in H.R. 3184, the ``Single 
Audit Act Amendments of 1996.'' For example, current section 
7502(d)(3) has been ineffective because it requires that when 
transactions are selected as part of the single audit, not 
because they are from major programs but pursuant to other 
requirements of section 7502, the auditor must test the 
transactions for compliance with laws and regulations and 
report any noncompliance. This requirement could result in the 
auditor having to test a few transactions from a non-major 
program even when such testing would not provide useful 
information about how the program was being administered. 
Further, it was interpreted to require auditors to report all 
findings, regardless of materiality. As a result, single audit 
reports often contain numerous inconsequential findings that 
are costly to document and divert attention from more 
significant findings. Current section 7502(d)(4) is another 
example of an unnecessary provision; it requires auditors to 
use professional judgment in selecting and testing 
transactions. Generally accepted government auditing standards 
require auditors to exercise sound professional judgment in 
conducting audits.
    Subsection (e) establishes the auditor's responsibilities. 
In addition to restatements or technical revisions of 
responsibilities already required by current law, including 
expressing an opinion on the financial statements, subsection 
(e) also codifies a requirement administratively imposed by the 
Director for the auditor to express an opinion on whether the 
schedule of expenditures of Federal awards is fairly presented 
in all material respects in relation to the financial 
statements. Subsection (e) also expressly states that the 
auditor must obtain an understanding of the internal controls 
over the compliance requirements for each major program, assess 
control risk, and test the controls unless the controls are 
deemed to be ineffective by the auditor.
    Subsection (f) is designed to help ensure that non-Federal 
entities and their subrecipients understand and comply with 
requirements for the Federal awards they receive. Subsection 
(f)(1) requires Federal agencies to provide recipients with the 
source and identifying number of the Federal awards and the 
requirements governing the use of the awards and the 
requirements of the Act, and review recipients' audit reports 
to determine whether prompt and appropriate corrective actions 
to resolve audit findings pertaining to Federal awards have 
been taken. Subsection (f)(2) places similar responsibilities 
on pass-through entities with respect to their subrecipients. 
Subsection (f)(2) also requires that pass-through entities 
monitor each subrecipient's use of Federal awards through site 
visits, limited scope audits, or other means, and the 
subrecipients to permit the pass-through entity's auditor to 
have access to the subrecipient's records and financial 
statements as may be necessary for the pass-through entity to 
comply with the Act.
    Subsection (g) is designed to provide more useful single 
audit reports by requiring auditors to include in single audit 
reports a summary of the results concerning the entities' 
financial statements, internal controls, and compliance with 
laws and regulations.
    Subsection (h) describes the content, destination, and time 
frame of the reporting package that a non-Federal entity must 
submit. The reporting package is to include the non-Federal 
entity's financial statements, schedule of expenditures of 
Federal awards, corrective action plan to resolve auditor's 
findings, and the auditor's reports. The package is to be 
transmitted to a Federal clearinghouse, designated by the 
Director, for subsequent distribution. Use of the clearinghouse 
should reduce the administrative burden on non-Federal entities 
by shifting the burden of distributing single audit reports 
from non-Federal entities to the Federal government. To 
increase the usefulness of the reports, the reporting package's 
time frame is shortened from the previously allowed 13 months 
after the end of the entity's fiscal year or years audited to 
the earlier of 30 days after the entity receives the report 
from the auditor or 9 months after the end of the year or years 
audited. Subsection (h) also authorizes a Federal agency to 
authorize a longer reporting time frame when the 9-month time 
frame would place an undue burden on the non-Federal entity. In 
addition, the Director is required to establish a transition 
period of not less than 2 years for non-Federal entities to 
achieve the 9-month reporting time frame. Entities would 
continue to have 13 months to submit their reporting package 
during the transition period.
    Subsection (i) reflects a modification to current law by 
requiring non-Federal entities to submit a plan for corrective 
actions if the auditor identifies audit findings, as defined by 
the Director, including material noncompliance with individual 
compliance requirements for a major program or a material 
weakness in the non-Federal entity's internal controls. Current 
law requires corrective action plans only if the auditor finds 
a material noncompliance or material weakness. By authorizing 
the Director to define the audit findings for which corrective 
action plans will be required, subsection (i) will help to 
ensure that appropriate attention will be given to problems 
that are important, though not in a technical sense material.
    Subsection (j) authorizes the Director, in consultation 
with the Chairman and Ranking Minority Member of the Committee 
on Governmental Affairs of the Senate and the Chairman and 
Ranking Minority Member of the Committee on Government Reform 
and Oversight of the House of Representatives, to approve pilot 
projects to test alternative methods of achieving the purposes 
of the Act. Such pilot projects, which would be voluntary 
undertakings by non-Federal entities, would provide a means of 
assessing new ways of testing and reporting on Federal awards.

Section 7503. Relation to other audit requirements

    The Single Audit Act Amendments of 1996 essentially restate 
the current law contained in subsections (a) through (d) of 
section 7503.
    Subsection (a) preserves the Act's policy that audits 
conducted under the Act would be in lieu of audits that a non-
Federal entity would be required to have under other Federal 
law or regulation. It also states that Federal agencies should 
rely on and use the audits to the extent they provide 
information the agencies need to carry out their 
responsibilities.
    Subsection (b) preserves Federal agencies' rights to 
conduct or arrange for additional audits which are necessary 
for the agency to carry out its responsibilities under Federal 
law or regulation and requires the agencies to plan the audits 
to avoid duplication of other audits of Federal awards. It 
proscribes non-Federal entities from constraining Federal 
agency efforts to carry out or arrange for additional audits.
    Subsection (c) states that the Act does not limit 
inspectors general or other Federal agencies' authority to 
conduct or arrange for audits or evaluations of Federal awards.
    Subsection (d) preserves the original Act's provision that 
exempts non-Federal entities from complying with provisions of 
other Federal laws or regulations that require the non-Federal 
entity to undergo a financial audit if the entity has an audit 
under the Act even though not required to have such an audit.
    Subsection (e) is amended by adding a statement making 
clear that to prevent duplication, any Federal funding agency 
conducting or arranging for an audit of a non-Federal entity in 
addition to the audit under this Act must coordinate the audit 
with the single Federal agency determined in accordance with 
section 7504 to be responsible for assisting the non-Federal 
entity with implementation of chapter 75.
    Subsection (f) is a new provision requiring auditors to 
make their working papers available to Federal agencies or the 
Comptroller General as part of a quality review program, to 
resolve audit findings or for other purposes consistent with 
the purposes of the Act. Subsection (f) makes clear that access 
to working papers includes the right to obtain copies, and is 
designed to help Federal agencies assess audit quality, resolve 
audit findings, and build upon the results of single audits.

Section 7504. Federal agency responsibilities and relations with non-
        Federal entities

    Subsection (a) is amended to require Federal agencies to 
monitor the use of Federal awards that the agency provides to 
non-Federal entities. It further requires Federal agencies to 
assess the quality of audits conducted under the Act when an 
agency is the single Federal agency determined under criteria 
specified by the Director. The original Act assigned audit-
related responsibilities, as well as the responsibility for 
coordinating additional audits that build upon the required 
audits, to cognizant agencies as determined by the Director. 
The deletion of existing provisions in section 7504 regarding 
the build upon nature of the additional audits conducted by 
cognizant agencies is in no way intended to suggest that 
agencies should eliminate or minimize the additional build upon 
work. The stated purposes of the bill make it clear that 
Federal agencies are to make efficient and effective use of the 
audits conducted under the Act and that the agencies should 
rely on and use the audits.
    Subsection (b) is added to give the Director the authority 
to prescribe criteria for determining the single Federal agency 
that would be responsible for providing technical assistance to 
non-Federal entities and help them implement the Act. Under 
current law, the Director must make specific agency 
assignments.
    Subsection (c) is added to require the Director to 
designate a Federal clearinghouse to receive copies of 
reporting packages developed in accordance with this Act. The 
clearinghouse would be expected to identify recipients that did 
not undergo an audit in accordance with the Act even though 
they were required to do so. The clearinghouse would also 
perform analyses to assist the Director in carrying out 
responsibilities under the Act.

Section 7505. Regulations

    This section is restated essentially as it is in current 
law, except for references to amendments made in other 
sections.
    Subsection (a) requires the Director to consult with groups 
involved with the single audit process, including the 
Comptroller General, other Federal, State, and local government 
officials as well as representatives of nonprofit 
organizations. It also requires each Federal agency to 
promulgate necessary amendments to conform its regulations with 
requirements of the Act and the Director's guidance.
    Subsection (b) concerns when Federal awards may be used to 
pay a share of the cost of audits conducted under this chapter. 
Under subsection (b), the percentage of the audit cost charged 
to Federal awards generally cannot be greater than the ratio of 
the entity's Federal awards expended to its total expenditures. 
A greater percentage of the audit cost may be charged to 
Federal awards only if the entity can demonstrate that the cost 
of auditing the Federal awards was higher. Subsection (b) is 
modified to prohibit such use when an entity's expenditure of 
Federal awards is less than $300,000 (or such higher threshold 
specified by the Director under section 7502(a)). This 
provision is added to preclude charging to Federal awards the 
cost of comprehensive audits of entities that have 
comparatively small amounts of Federal expenditures. However, 
the Director may allow recipients to charge to their Federal 
awards the cost of limited scope audits to monitor 
subrecipients in accordance with section 7502(f)(2).
    Subsection (c) maintains a provision of the original Act 
which mandates that the Director's guidance shall include 
provisions to ensure that small businesses and business 
concerns owned and controlled by socially and economically 
disadvantaged individuals will have the opportunity to 
participate in contracts for the conduct of audits under the 
Act.

Section 7506. Monitoring responsibilities of the Comptroller General

    This section maintains the Comptroller General's 
responsibility under current law to monitor legislation and 
identify inconsistencies with the Single Audit Act.
    Subsection (a) preserves the Comptroller General's 
responsibility to monitor bills and resolutions introduced in 
Congress that contain provisions requiring audits of Federal 
awards. Subsection (b) requires the Comptroller General to 
notify in writing the committee that reported the bill or 
resolution as well as the Committee on Governmental Affairs of 
the Senate or the Committee on Government Reform and Oversight 
of the House of Representatives if the provisions are 
inconsistent with the provisions of this bill.

Section 7507. Effective date

    The requirements of this Act shall apply to any non-Federal 
entity's fiscal year beginning after June 30, 1996.
    Former subsection (b) requiring the Director to submit an 
annual report to the Congress on operations under the Act is 
deleted.

Section 3. Transitional application

    This section makes clear that for fiscal years beginning 
before July 1, 1996, State and local governments shall continue 
following the requirements in current law without regard to the 
Single Audit Act Amendments of 1996.

                       V. Compliance With Rule XI

    Pursuant to rule XI, clause 2(l)(3)(A), of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(f), the results and findings for those 
oversight activities are incorporated in the recommendations 
found in the bill and in this report.

                  VI. Budget Analysis and Projections

    This Act provides for no new authorization or budget 
authority or tax expenditures. Consequently, the provisions of 
section 308(a)(1) of the Congressional Budget Act are not 
applicable.

         VII. Cost Estimate of the Congressional Budget Office

    The Committee was provided the following estimate of the 
cost of H.R. 3184, as prepared by the Congressional Budget 
Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 1996.
Hon. William F. Clinger, Jr.,
Chairman, Committee on Government Reform and Oversight,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 3184, the Single Audit Act Amendments of 1996, as 
ordered reported by the House Committee on Government Reform 
and Oversight on April 24, 1996. CBO estimates that H.R. 3184 
would not significantly affect spending by the federal 
government. Because the bill would not affect direct spending 
or receipts, pay-as-you-go procedures would not apply.
    Bill Purpose--H.R. 3184 would:
          increase from $100,000 in annual awards to $300,000 
        in annual expenditures the dollar threshold at which a 
        nonfederal entity has to undergo an independent audit 
        of its operations and use of federal funds;
          substitute risk for program size in selecting major 
        programs for auditing in addition to the comprehensive 
        single audit;
          extend the coverage of the Single Audit to include 
        educational institutions and other nonprofit 
        organizations--currently, audits of such organizations 
        are required by OMB Circular A-133 but not by law;
          shorten the amount of time between the end of an 
        audit period and the submission of the audit report 
        from 13 months to 9 months; and
          require that the Director of the Office of Management 
        and Budget designate a federal clearinghouse to receive 
        copies of the audit reports, to identify entities that 
        do not comply with the single audit requirement, and to 
        provide analyses requested by the Director.
    Federal Budgetary Impact--CBO estimates that H.R. 3184 
would not significantly affect federal spending because the 
bill would primarily affect the need for and regulation of 
audits conducted by nonfederal entities. Any small increase in 
spending from designating a federal clearinghouse or from 
providing technical assistance and other information to 
nonfederal entities would be subject to the availability of 
appropriated funds.
    Mandates Statement--Section 4 of Public Law 104-4 excludes 
from the application of that law provisions that require 
``compliance with accounting and auditing procedures with 
respect to grants or other money or property provided by the 
federal government.'' CBO has determined that all provisions of 
H.R. 3184 fit within that exclusion.
    Previous Estimate--On April 26, 1996, CBO prepared a cost 
estimate for S. 1579, the Single Audit Act Amendments of 1996, 
as ordered reported by the Senate Committee on Governmental 
Affairs on April 18, 1996. The two bills are identical, as are 
the estimates.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
Righter.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                  VIII. Inflationary Impact Statement

    In accordance with rule XI, clause 2(l)(4) of the Rules of 
the House of Representatives, this legislation is assessed to 
have no inflationary effect on prices and costs in the 
operation of the national economy.

       IX. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                      TITLE 31, UNITED STATES CODE

          * * * * * * *

              [CHAPTER 75--REQUIREMENTS FOR SINGLE AUDITS

Sec.
[7501.  Definitions.
[7502.  Audit requirements; exemptions.
[7503.  Relation to other audit requirements.
[7504.  Cognizant agency responsibilities.
[7505.  Regulations.
[7506.  Monitoring responsibilities of the Comptroller General.
[7507.  Effective date; report.

[Sec. 7501. Definitions

  [As used in this chapter, the term--
          [(1) ``cognizant agency'' means a Federal agency 
        which is assigned by the Director with the 
        responsibility for implementing the requirements of 
        this chapter with respect to a particular State or 
        local government.
          [(2) ``Comptroller General'' means the Comptroller 
        General of the United States.
          [(3) ``Director'' means the Director of the Office of 
        Management and Budget.
          [(4) ``Federal financial assistance'' means 
        assistance provided by a Federal agency in the form of 
        grants, contracts, loans, loan guarantees, property, 
        cooperative agreements, interest subsidies, insurance, 
        or direct appropriations, but does not include direct 
        Federal cash assistance to individuals.
          [(5) ``Federal agency'' has the same meaning as the 
        term ``agency'' in section 551(1) of title 5, United 
        States Code.
          [(6) ``generally accepted accounting principles'' has 
        the meaning specified in the generally accepted 
        government auditing standards.
          [(7) ``generally accepted government auditing 
        standards'' means the standards for audit of 
        governmental organizations, programs, activities, and 
        functions, 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) ``internal controls'' means the plan of 
        organization and methods and procedures adopted by 
        management to ensure that--
                  [(A) resource use is consistent with laws, 
                regulations, and policies;
                  [(B) resources are safeguarded against waste, 
                loss, and misuse; and
                  [(C) reliable data are obtained, maintained, 
                and fairly disclosed in reports.
          [(10) ``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.
          [(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, and any 
        other instrumentality of local government.
          [(12) ``major Federal assistance program'' means any 
        program for which total expenditures of Federal 
        financial assistance by the State or local government 
        during the applicable year exceed--
                  [(A) $20,000,000 in the cause of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $7,000,000,000;
                  [(B) $19,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $6,000,000,000 but are less than or equal to 
                $7,000,000,000;
                  [(C) $16,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $5,000,000,000 but are less than or equal to 
                $6,000,000,000;
                  [(D) $13,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $4,000,000,000 but are less than or equal to 
                $5,000,000,000;
                  [(E) $10,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $3,000,000,000 but are less than or equal to 
                $4,000,000,000;
                  [(F) $7,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $2,000,000,000 but are less than or equal to 
                $3,000,000,000;
                  [(G) $4,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $1,000,000,000 but are less than or equal to 
                $2,000,000,000;
                  [(H) $3,000,000 in the case of a State or 
                local government for which such total 
                expenditures for all programs exceed 
                $100,000,000 but are less than or equal to 
                $1,000,000,000; and
                  [(I) the larger of (i) $300,000, or (ii) 3 
                percent of such total expenditures for all 
                programs, in the case of a State or local 
                government for which such total expenditures 
                for all programs exceed $100,000 but are less 
                than or equal to $100,000,000.
          [(13) ``public accountants'' means those individuals 
        who meet the qualification standards included in 
        generally accepted government auditing standards for 
        personnel performing government audits.
          [(14) ``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.
          [(15) ``subrecipient'' means any person or government 
        department, agency, or establishment that receives 
        Federal financial assistance through a State or local 
        government, but does not include an individual that 
        receives such assistance.

[Sec. 7502. Audit requirement; exemptions

  [(a)(1)(A) Each State and local government which receives a 
total amount of Federal financial assistance equal to or in 
excess of $100,000 in any fiscal year of such government shall 
have an audit made for such fiscal year in accordance with the 
requirements of this chapter and the requirements of the 
regulations prescribed pursuant to section 7505 of this title.
  [(B) Each State and local government that receives a total 
amount of Federal financial assistance which is equal to or in 
excess of $25,000 but less than $100,000 in any fiscal year of 
such government shall--
          [(i) have an audit made for such fiscal year in 
        accordance with the requirements of this chapter and 
        the requirements of the regulations prescribed pursuant 
        to section 7505 of this title; or
          [(ii) comply with any applicable requirements 
        concerning financial or financial and compliance audits 
        contained in Federal statutes and regulations governing 
        programs under which such Federal financial assistance 
        is provided to that government.
  [(C) Each State and local government that receives a total 
amount of Federal financial assistance which is less than 
$25,000 in any fiscal year of such government shall be exempt 
for such fiscal year from compliance with--
          [(i) the audit requirements of this chapter; and
          [(ii) any applicable requirements concerning 
        financial or financial and compliance audits contained 
        in Federal statutes and regulations governing programs 
        under which such Federal financial assistance is 
        provided to that government.
The provisions of clause (ii) of this subparagraph do not 
exempt a State or local government from compliance with any 
provision of a Federal statute or regulation that requires such 
government to maintain records concerning Federal financial 
assistance provided to such government or that permits a 
Federal agency or the Comptroller General access to such 
records.
  [(2) For purposes of this section, a State or local 
government shall be considered to receive Federal financial 
assistance whether such assistance is received directly from a 
Federal agency or indirectly through another State or local 
government.
  [(b)(1) Except as provided in paragraphs (2) and (3), audits 
conducted pursuant to this chapter shall be conducted annually.
  [(2) If a State or local government is required--
          [(A) by constitution or statute, as in effect on 
        October 19, 1984, or
          [(B) by administrative rules, regulations, 
        guidelines, standards, or policies, as in effect on 
        October 19, 1984.
to conduct its audits less frequently than annually, the 
cognizant agency for such government shall, upon request of 
such government, permit the government to conduct its audits 
pursuant to this chapter biennially, except as provided in 
paragraph (3). Such audits shall cover both years within the 
biennial period.
  [(3) Any State or local government that is permitted, under 
clause (B) of paragraph (2), to conduct its audits pursuant to 
this chapter biennially by reason of the requirements of a 
rule, regulation, guideline, standard, or policy, shall, for 
any of its fiscal years beginning after December 31, 1986, 
conduct such audits annually unless such State or local 
government codifies a requirement for biennial audits in its 
constitution or statutes by January 1, 1987. Audits conducted 
biennially under the provisions of this paragraph such 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, such standards shall not be 
construed to require economy and efficiency audits, program 
results audits, or program evaluations.
  [(d)(1) Each audit conducted pursuant to subsection (a) for 
any fiscal year shall cover the entire State or local 
government's operations except that, at the option of such 
government--
          [(A) such audit may, except as provided in paragraph 
        (5), cover only each department, agency, or 
        establishment which received, expended, or otherwise 
        administered Federal financial assistance during such 
        fiscal year; and
          [(B) such audit may exclude public hospitals and 
        public colleges and universities.
  [(2) Each such audit shall encompass the entirety of the 
financial operations of such government or of such department, 
agency, or establishment, whichever is applicable, and shall 
determine and report whether--
          [(A)(i) the financial statements of the government, 
        department, agency, or establishment present fairly its 
        financial position and the results of its financial 
        operations in accordance with generally accepted 
        accounting principles; and
          [(ii) the government, department, agency, or 
        establishment has complied with laws and regulations 
        that may have a material effect upon the financial 
        statements;
          [(B) the government, department, agency, or 
        establishment has internal control systems to provide 
        reasonable assurance that it is managing Federal 
        financial assistance programs in compliance with 
        applicable laws and regulations; and
  [(C) the government, department, agency, or establishment has 
complied with laws and regulations that may have a material 
effect upon each major Federal assistance program.
In complying with the requirements of subparagraph (C), the 
independent auditor shall select and test a representative 
number of transactions from each major Federal assistance 
program.
  [(3) Transactions selected from Federal assistance programs, 
other than major Federal assistance programs, pursuant to the 
requirements of paragraphs (2)(A) and (2)(B) shall be tested 
for compliance with Federal laws and regulations that apply to 
such transactions. Any noncompliance found in such transactions 
by the independent auditor in making determinations required by 
this paragraph shall be reported.
  [(4) The number of transactions selected and tested under 
paragraphs (2) and (3), the selection and testing of such 
transactions, and the determinations required by such 
paragraphs shall be based on the professional judgment of the 
independent auditor.
  [(5) A series of audits of individual departments, agencies, 
and establishments for the same fiscal year may be considered 
to be an audit for the purpose of this chapter.
  [(e)(1) Each State and local government subject to the audit 
requirements of this chapter, which receives Federal financial 
assistance and provides $25,000 or more of such assistance in 
any fiscal year to a subrecipient, shall--
          [(A) if the subrecipient conducts an audit in 
        accordance with the requirements of this chapter, 
        review such audit and ensure that prompt and 
        appropriate corrective action is taken on instances of 
        material noncompliance with applicable laws and 
        regulations with respect to Federal financial 
        assistance provided to the subrecipient by the State or 
        local government; or
          [(B) if the subrecipient does not conduct an audit in 
        accordance with the requirements of this chapter--
                  [(i) determine whether the expenditures of 
                Federal financial assistance provided to the 
                subrecipient by the State or local government 
                are in accordance with applicable laws and 
                regulations; and
                  [(ii) ensure that prompt and appropriate 
                corrective action is taken on instances of 
                material noncompliance with applicable laws and 
                regulations with respect to Federal financial 
                assistance provided to the subrecipient by the 
                State or local government.
  [(2) Each such State and local government shall require each 
subrecipient of Federal assistance through such government to 
permit, as a condition of receiving funds from such assistance, 
the independent auditor of the State or local government to 
have such access to the subrecipient's records and financial 
statements as may be necessary for the State or local 
government to comply with this chapter.
  [(f) The report made on any audit conducted pursuant to this 
section shall, within thirty days after completion of such 
report, be transmitted to the appropriate Federal officials and 
made available by the State or local government for public 
inspection.
  [(g) If an audit conducted pursuant to this section finds any 
material noncompliance with applicable laws and regulations by, 
or material weakness in the internal controls, of, the State or 
local government with respect to the matters described in 
subsection (d)(2), the State or local government shall submit 
to appropriate Federal officials a plan for corrective action 
to eliminate such material noncompliance or weakness 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) of this title.

[Sec. 7503. Relation to other audit requirements

  [(a) An audit conducted in accordance with this chapter shall 
be in lieu of any financial or financial and compliance audit 
of an individual Federal assistance program which a State or 
local government is required to conduct 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 and plan and 
conduct its own audits accordingly in order to avoid a 
duplication of effort.
  [(b) Notwithstanding subsection (a), a Federal agency shall 
conduct any additional audits which are necessary to carry out 
its responsibilities under Federal law or regulation. The 
provisions of this chapter do not authorize any State or local 
government (or subrecipient thereof) to constrain, in any 
manner, such agency from carrying out such additional audits.
  [(c) The provisions of this chapter do not limit the 
authority of Federal agencies to conduct, or enter into 
contracts for the conduct of, audits and evaluations of Federal 
financial assistance programs, nor limit the authority of any 
Federal agency Inspector General or other Federal audit 
official.
  [(d) Subsection (a) shall apply to a State or local 
government which conducts an audit in accordance with this 
chapter even though it is not required by section 7502(a) to 
conduct such audit.
  [(e) A Federal agency that performs or contracts for audits 
in addition to the audits conducted by recipients pursuant to 
this chapter shall, consistent with other applicable law, 
arrange for funding the cost of such additional audits. Such 
additional audits include economy and efficiency audits, 
program results audits, and program evaluations.

[Sec. 7504. Cognizant agency responsibilities

  [(a) The Director shall designate cognizant agencies for 
audits conducted pursuant to this chapter.
  [(b) A cognizant agency shall--
          [(1) ensure that audits are made in a timely manner 
        and in accordance with the requirements of this 
        chapter;
          [(2) ensure that the audit reports and corrective 
        action plans made pursuant to section 7502 of this 
        title are transmitted to the appropriate Federal 
        officials; and
          [(3)(A) coordinate, to the extent practicable, audits 
        done by or under contract with Federal agencies that 
        are in addition to the audits conducted pursuant to 
        this chapter; and (B) ensure that such additional 
        audits build upon the audits conducted pursuant to this 
        chapter.

[Sec. 7505. Regulations

  [(a) The Director, after consultation with the Comptroller 
General and appropriate Federal, State, and local government 
officials, shall prescribe policies, procedures, and guidelines 
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 policies, procedures, and guidelines.
  [(b)(1) The policies, procedures, and guidelines prescribed 
pursuant to subsection (a) shall include criteria for 
determining the appropriate charges to programs of Federal 
financial assistance for the cost of audits. Such criteria 
shall prohibit a State or local government which is required to 
conduct an audit pursuant to this chapter from charging to any 
such program (A) the cost of any financial or financial and 
compliance audit which is not conducted in accordance with this 
chapter, 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 (A) the ratio of (i) the total charges by a 
government to Federal financial assistance programs for the 
cost of audits performed pursuant to this chapter, to (ii) the 
total cost of such audits, to exceed (B) the ratio of (i) total 
Federal financial assistance expended by such government during 
the applicable fiscal year or years, to (ii) such government's 
total expenditures during such fiscal year or years.
  [(c) Such policies, procedures, and guidelines shall include 
such provisions as may be necessary to ensure that shall 
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

  [The Comptroller General shall review provisions requiring 
financial or financial and compliance audits of recipients of 
Federal assistance that are contained in bills and resolutions 
reported by the committees of the Senate and the House of 
Representatives. 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 Operations 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; report

  [(a) This chapter shall apply to any State or local 
government with respect to any of its fiscal years which begin 
after December 31, 1984.
  [(b) The Director, on or before May 1, 1987, and annually 
thereafter, shall submit to each House of Congress a report on 
operations under this chapter. Each such report shall 
specifically identify each Federal agency or State or local 
government which is failing to comply with this chapter.]

               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, 
        food commodities, direct appropriations, or other 
        assistance, but does not include amounts received as 
        reimbursement for services rendered to individuals in 
        accordance with guidance issued by the Director;
          (6) ``Federal program'' means all Federal awards to a 
        non-Federal entity assigned a single number in the 
        Catalog of Federal Domestic Assistance or encompassed 
        in a group of numbers or other category as defined by 
        the Director;
          (7) ``generally accepted government auditing 
        standards'' means the government auditing standards 
        issued by the Comptroller General;
          (8) ``independent auditor'' means--
                  (A) an external State or local government 
                auditor who meets the independence standards 
                included in generally accepted government 
                auditing standards; or
                  (B) a public accountant who meets such 
                independence standards;
          (9) ``Indian tribe'' means any Indian tribe, band, 
        nation, or other organized group or community, 
        including any Alaskan Native village or regional or 
        village corporation (as defined in, or established 
        under, the Alaskan Native Claims Settlement Act) that 
        is recognized by the United States as eligible for the 
        special programs and services provided by the United 
        States to Indians because of their status as Indians;
          (10) ``internal controls'' means a process, effected 
        by an entity's management and other personnel, designed 
        to provide reasonable assurance regarding the 
        achievement of objectives in the following categories:
                  (A) Effectiveness and efficiency of 
                operations.
                  (B) Reliability of financial reporting.
                  (C) Compliance with applicable laws and 
                regulations;
          (11) ``local government'' means any unit of local 
        government within a State, including a county, borough, 
        municipality, city, town, township, parish, local 
        public authority, special district, school district, 
        intrastate district, council of governments, any other 
        instrumentality of local government and, in accordance 
        with guidelines issued by the Director, a group of 
        local governments;
          (12) ``major program'' means a Federal program 
        identified in accordance with risk-based criteria 
        prescribed by the Director under this chapter, subject 
        to the limitations described under subsection (b);
          (13) ``non-Federal entity'' means a State, local 
        government, or nonprofit organization;
          (14) ``nonprofit organization'' means any 
        corporation, trust, association, cooperative, or other 
        organization that--
                  (A) is operated primarily for scientific, 
                educational, service, charitable, or similar 
                purposes in the public interest;
                  (B) is not organized primarily for profit; 
                and
                  (C) uses net proceeds to maintain, improve, 
                or expand the operations of the organization;
          (15) ``pass-through entity'' means a non-Federal 
        entity that provides Federal awards to a subrecipient 
        to carry out a Federal program;
          (16) ``program-specific audit'' means an audit of one 
        Federal program;
          (17) ``recipient'' means a non-Federal entity that 
        receives awards directly from a Federal agency to carry 
        out a Federal program;
          (18) ``single audit'' means an audit, as described 
        under section 7502(d), of a non-Federal entity that 
        includes the entity's financial statements and Federal 
        awards;
          (19) ``State'' means any State of the United States, 
        the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the 
        Commonwealth of the Northern Mariana Islands, and the 
        Trust Territory of the Pacific Islands, any 
        instrumentality thereof, any multi-State, regional, or 
        interstate entity which has governmental functions, and 
        any Indian tribe; and
          (20) ``subrecipient'' means a non-Federal entity that 
        receives Federal awards through another non-Federal 
        entity to carry out a Federal program, but does not 
        include an individual who receives financial assistance 
        through such awards.
  (b) In prescribing risk-based program selection criteria for 
major programs, the Director shall not require more programs to 
be identified as major for a particular non-Federal entity, 
except as prescribed under subsection (c) or as provided under 
subsection (d), than would be identified if the major programs 
were defined as any program for which total expenditures of 
Federal awards by the non-Federal entity during the applicable 
year exceed--
          (1) the larger of $30,000,000 or 0.15 percent of the 
        non-Federal entity's total Federal expenditures, in the 
        case of a non-Federal entity for which such total 
        expenditures for all programs exceed $10,000,000,000;
          (2) the larger of $3,000,000, or 0.30 percent of the 
        non-Federal entity's total Federal expenditures, in the 
        case of a non-Federal entity for which such total 
        expenditures for all programs exceed $100,000,000 but 
        are less than or equal to $10,000,000,000; or
          (3) the larger of $300,000, or 3 percent of such 
        total Federal expenditures for all programs, in the 
        case of a non-Federal entity for which such total 
        expenditures for all programs equal or exceed $300,000 
        but are less than or equal to $100,000,000.
  (c) When the total expenditures of a non-Federal entity's 
major programs are less than 50 percent of the non-Federal 
entity's total expenditures of all Federal awards (or such 
lower percentage as specified by the Director), the auditor 
shall select and test additional programs as major programs as 
necessary to achieve audit coverage of at least 50 percent of 
Federal expenditures by the non-Federal entity (or such lower 
percentage as specified by the Director), in accordance with 
guidance issued by the Director.
  (d) Loan or loan guarantee programs, as specified by the 
Director, shall not be subject to the application of subsection 
(b).

Sec. 7502. Audit requirements; exemptions

  (a)(1)(A) Each non-Federal entity that expends a total amount 
of Federal awards equal to or in excess of $300,000 or such 
other amount specified by the Director under subsection (a)(3) 
in any fiscal year of such non-Federal entity shall have either 
a single audit or a program-specific audit made for such fiscal 
year in accordance with the requirements of this chapter.
  (B) Each such non-Federal entity that expends Federal awards 
under more than one Federal program shall undergo a single 
audit in accordance with the requirements of subsections (b) 
through (i) of this section and guidance issued by the Director 
under section 7505.
  (C) Each such non-Federal entity that expends awards under 
only one Federal program and is not subject to laws, 
regulations, or Federal award agreements that require a 
financial statement audit of the non-Federal entity, may elect 
to have a program-specific audit conducted in accordance with 
applicable provisions of this section and guidance issued by 
the Director under section 7505.
  (2)(A) Each non-Federal entity that expends a total amount of 
Federal awards of less than $300,000 or such other amount 
specified by the Director under subsection (a)(3) in any fiscal 
year of such entity, shall be exempt for such fiscal year from 
compliance with--
          (i) the audit requirements of this chapter; and
          (ii) any applicable requirements concerning financial 
        audits contained in Federal statutes and regulations 
        governing programs under which such Federal awards are 
        provided to that non-Federal entity.
  (B) The provisions of subparagraph (A)(ii) of this paragraph 
shall not exempt a non-Federal entity from compliance with any 
provision of a Federal statute or regulation that requires such 
non-Federal entity to maintain records concerning Federal 
awards provided to such non-Federal entity or that permits a 
Federal agency, pass-through entity, or the Comptroller General 
access to such records.
  (3) Every 2 years, the Director shall review the amount for 
requiring audits prescribed under paragraph (1)(A) and may 
adjust such dollar amount consistent with the purposes of this 
chapter, provided the Director does not make such adjustments 
below $300,000.
  (b)(1) Except as provided in paragraphs (2) and (3), audits 
conducted pursuant to this chapter shall be conducted annually.
  (2) A State or local government that is required by 
constitution or statute, in effect on January 1, 1987, to 
undergo its audits less frequently than annually, is permitted 
to undergo its audits pursuant to this chapter biennially. 
Audits conducted biennially under the provisions of this 
paragraph shall cover both years within the biennial period.
  (3) Any nonprofit organization that had biennial audits for 
all biennial periods ending between July 1, 1992, and January 
1, 1995, is permitted to undergo its audits pursuant to this 
chapter biennially. Audits conducted biennially under the 
provisions of this paragraph shall cover both years within the 
biennial period.
  (c) Each audit conducted pursuant to subsection (a) shall be 
conducted by an independent auditor in accordance with 
generally accepted government auditing standards, except that, 
for the purposes of this chapter, performance audits shall not 
be required except as authorized by the Director.
  (d) Each single audit conducted pursuant to subsection (a) 
for any fiscal year shall--
          (1) cover the operations of the entire non-Federal 
        entity; or
          (2) at the option of such non-Federal entity such 
        audit shall include a series of audits that cover 
        departments, agencies, and other organizational units 
        which expended or otherwise administered Federal awards 
        during such fiscal year provided that each such audit 
        shall encompass the financial statements and schedule 
        of expenditures of Federal awards for each such 
        department, agency, and organizational unit, which 
        shall be considered to be a non-Federal entity.
  (e) The auditor shall--
          (1) determine whether the financial statements are 
        presented fairly in all material respects in conformity 
        with generally accepted accounting principles;
          (2) determine whether the schedule of expenditures of 
        Federal awards is presented fairly in all material 
        respects in relation to the financial statements taken 
        as a whole;
          (3) with respect to internal controls pertaining to 
        the compliance requirements for each major program--
                  (A) obtain an understanding of such internal 
                controls;
                  (B) assess control risk; and
                  (C) perform tests of controls unless the 
                controls are deemed to be ineffective; and
          (4) determine whether the non-Federal entity has 
        complied with the provisions of laws, regulations, and 
        contracts or grants pertaining to Federal awards that 
        have a direct and material effect on each major 
        program.
  (f)(1) Each Federal agency which provides Federal awards to a 
recipient shall--
          (A) provide such recipient the program names (and any 
        identifying numbers) from which such awards are 
        derived, and the Federal requirements which govern the 
        use of such awards and the requirements of this 
        chapter; and
          (B) review the audit of a recipient as necessary to 
        determine whether prompt and appropriate corrective 
        action has been taken with respect to audit findings, 
        as defined by the Director, pertaining to Federal 
        awards provided to the recipient by the Federal agency.
  (2) Each pass-through entity shall--
          (A) provide such subrecipient the program names (and 
        any identifying numbers) from which such assistance is 
        derived, and the Federal requirements which govern the 
        use of such awards and the requirements of this 
        chapter;
          (B) monitor the subrecipient's use of Federal awards 
        through site visits, limited scope audits, or other 
        means;
          (C) review the audit of a subrecipient as necessary 
        to determine whether prompt and appropriate corrective 
        action has been taken with respect to audit findings, 
        as defined by the Director, pertaining to Federal 
        awards provided to the subrecipient by the pass-through 
        entity; and
          (D) require each of its subrecipients of Federal 
        awards to permit, as a condition of receiving Federal 
        awards, the independent auditor of the pass-through 
        entity to have such access to the subrecipient's 
        records and financial statements as may be necessary 
        for the pass-through entity to comply with this 
        chapter.
  (g)(1) The auditor shall report on the results of any audit 
conducted pursuant to this section, in accordance with guidance 
issued by the Director.
  (2) When reporting on any single audit, the auditor shall 
include a summary of the auditor's results regarding the non-
Federal entity's financial statements, internal controls, and 
compliance with laws and regulations.
  (h) The non-Federal entity shall transmit the reporting 
package, which shall include the non-Federal entity's financial 
statements, schedule of expenditures of Federal awards, 
corrective action plan defined under subsection (i), and 
auditor's reports developed pursuant to this section, to a 
Federal clearinghouse designated by the Director, and make it 
available for public inspection within the earlier of--
          (1) 30 days after receipt of the auditor's report; or
          (2)(A) for a transition period of at least 2 years 
        after the effective date of the Single Audit Act 
        Amendments of 1996, as established by the Director, 13 
        months after the end of the period audited; or
          (B) for fiscal years beginning after the period 
        specified in subparagraph (A), 9 months after the end 
        of the period audited, or within a longer timeframe 
        authorized by the Federal agency, determined under 
        criteria issued under section 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.
          * * * * * * *

                      X. Committee Recommendation

    On April 24, 1996, a quorum being present, the Committee 
ordered the bill, as amended, favorably reported.

 committee on government reform and oversight--104th congress rollcall

    Date: April 24, 1996.
    Final Passage of H.R. 3184.
    Offered By: Mr. Horn.
    Voice Vote: Ayes.

    XI. Congressional Accountability Act; Public Law 104-1; Section 
                               102(B)(3)

    This provision applies to the legislative branch in that 
the Comptroller General is required to review laws and 
regulations to determine that they do not conflict the 
provisions of this bill. It does not relate to any terms or 
conditions of employment or access to public services or 
accommodations.

                                
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