[Federal Register Volume 62, Number 125 (Monday, June 30, 1997)]
[Notices]
[Pages 35302-35319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16966]


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OFFICE OF MANAGEMENT AND BUDGET


OMB Circular A-133 Information Collection Under OMB Review

AGENCY: Office of Management and Budget.

ACTION: Notice.

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SUMMARY: In accordance with the Paperwork Reduction Act of 1980, as 
amended (44 U.S.C. 3501 et seq.), this notice announces that an 
information collection request was submitted to the Office of 
Management and Budget's (OMB) Office of Information and Regulatory 
Affairs for processing under 5 CFR 1320.10. The first notice of this 
information collection request, as required by the Paperwork Reduction 
Act, was published in the Federal Register on November 5, 1996 (61 FR 
57232), as part of the proposed revision of OMB Circular A-133, re-
titled ``Audits of States, Local Governments, and Non-Profit 
Organizations.''
    The information collection request involves two proposed 
information collections from two types of entities: (1) Reports from 
auditors to auditees concerning audit results, audit findings, and 
questioned costs; and, (2) reports from auditees to the Federal 
Government providing information about the auditees, the awards they 
administer, and the audit results. Circular A-133's information 
collection requirements will apply to approximately 25,000 States, 
local governments, and non-profit organizations on an annual basis.

DATES: Written comments must be received by July 30, 1997.

ADDRESSES: Written comments should be sent to: Edward Springer, Office 
of Information and Regulatory Affairs, OMB, Room 10236, New Executive 
Office Building, Washington, DC 20503. Electronic mail comments may be 
submitted via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: For further information, contact 
Sheila Conley, Office of Federal Financial Management, OMB (telephone: 
202-395-3993). The text of this Notice and the November 5, 1996, 
Federal Register are available electronically on the OMB home page at 
http://www.whitehouse.gov/WH/EOP/omb, under the caption ``Federal 
Register Submissions.''

SUPPLEMENTARY INFORMATION:

A. Background

    As part of the Single Audit Act Amendments of 1996 (1996 
Amendments), Congress intended to improve the usefulness and 
effectiveness of single audit reporting with respect to information 
provided by both auditors and auditees. In its report on the 1996 
Amendments, the House Committee on Government Reform and Oversight 
stated that ``the complexity of the reports makes it difficult for the 
average reader to understand what has been audited and reported * * * A 
summary of the audit results would highlight important information and 
thus enable users to quickly discern the overall results of an audit'' 
(H.R. Report 104-607, page 18).
    The revised information collection requirements included in the 
proposed revision of Office of Management and Budget (OMB) Circular A-
133, re-titled ``Audits of States, Local Governments, and Non-Profit 
Organizations,'' published in the November 5, 1996, Federal Register 
notice (61 FR 57232), are intended to improve both the content of 
single audit reports and the dissemination of information included 
therein to various report users (e.g., Congress, Federal program 
managers, pass-through entities). As indicated in the November 5, 1996, 
Federal Register notice, OMB believes that the revised information 
collection requirements included in the proposed revision of Circular 
A-133 would result in significantly improved single audit reporting and 
governmentwide data collection.
    Circular A-133's information collection requirements will apply to 
approximately 25,000 States, local governments, and non-profit 
organizations on an annual basis. OMB's estimate of the total annual 
reporting and recordkeeping burden that will result from this 
information collection is presented in Table 1.

B. Public Comments and Responses

    Pursuant to the November 5, 1996, Federal Register notice, OMB 
received approximately 150 comments relating to this proposed 
information collection. Letters came from Federal agencies (including 
Offices of Inspectors General), State governments (including State 
auditors), certified public

[[Page 35303]]

accountants (CPAs), non-profit organizations (including colleges and 
universities), professional organizations, and others. All comments 
were considered in preparing OMB's responses presented below and in 
developing the final revision to Circular A-133, which is published in 
a companion Notice in this Part in today's Federal Register. The 
comments received relating to the information collection and OMB's 
responses are summarized below.

Estimates of Reporting Burden

Comments
    In the preamble of the proposed revision, OMB stated that the 
reporting burden per audit will increase from 26 hours under the 
existing requirements of Circulars A-128, ``Audits of States and Local 
Governments,'' and A-133, ``Audits of Institutions of Higher Education 
and Other Non-Profit Institutions,'' to 34 hours under the proposed 
revision. OMB stated that the increase in hours was due, in part, to 
the new requirement to prepare the data collection form, which would 
take four hours, if prepared by the auditee, and two hours, if prepared 
by the auditor. Most commenters--primarily State auditors and CPAs--
stated that OMB's estimates regarding the preparation of the data 
collection form are too low. Several State auditors commented that, 
while the estimates may be appropriate for smaller States and local 
governments, they are grossly understated for larger governments. Some 
State auditors provided estimates to prepare the form for smaller 
entities ranging from two to four hours but no estimates were provided 
by State auditors to prepare the form for larger entities. One State 
agency stated that ``For an audit the size and complexity of New York 
State, the preparation and review of a data collection form would take 
at least 15 hours and could take up to 40 hours. For smaller entities 
where New York State serves as the pass-through entity, the estimates 
range from 5 to 15 hours.'' One State auditor questioned how realistic 
any time estimates can be until someone actually prepares the form. One 
CPA commenter stated that ``OMB's estimate that auditor preparation of 
the data collection form would take two hours appears to be low. Most 
firms, including ours, have implemented policies that require reviews 
of work performed and reports issued, whether involving formal reports 
or preparation of government forms. Depending on the size and 
complexity of an auditee, the preparation and review of a data 
collection form could take anywhere from 5 to 15 hours.''
    Response: Based on the comments received, OMB revised the reporting 
burden and cost estimates, as presented in Table 1. Several 
modifications were made in determining the revised estimates. First, 
OMB estimated reporting burden hours and costs separately for large 
auditees (i.e., auditees most likely to administer a large number of 
Federal awards) and all other auditees. For estimation purposes, OMB 
separately estimated burden for 200 large auditees, consisting of the 
50 States, 50 largest counties and cities, and 100 largest non-profit 
organizations (including colleges and universities). The reporting 
burden for both auditees and auditors increases significantly for 
entities that administer a large number of Federal awards because the 
length of time required to prepare both the schedule of Federal awards 
and the data collection form increase with the number of Federal awards 
administered by the auditee. Second, the revised estimates reflect the 
modified requirements included in the final revision to Circular A-133 
whereby the auditor will prepare and sign sections of the data 
collection form that relate to the audit results and Federal awards, 
and the auditee will review and sign the form certifying its 
completeness and accuracy. And, third, the cost estimates are now based 
on an average rate per hour of $25 per hour for auditees and $70 per 
hour for auditors.
    The 1996 Amendments increased the threshold that triggers an audit 
requirement from $25,000 to $300,000, thereby reducing the number of 
entities subject to the Act's requirements from approximately 35,000 
entities under the existing requirements to approximately 25,000 
entities under the 1996 Amendments. As a result, the overall burden 
hours of this information collection decreased by 43,200 hours (from 
910,000 burden hours under the existing requirements to 866,800 under 
the new requirements). However, the total annualized cost of this 
information collection increased by $1.6 million (from $38.5 million 
under the existing requirements to $40.1 million under the new 
requirements), due to an increase in the number of hours incurred by 
auditors (versus auditees) under the new requirements at a higher 
hourly rate.
    The average reporting burden per respondent increased 8.7 hours 
under the new requirements (from an average of 26 hours per respondent 
under the existing requirements of Circulars A-128 and A-133 to an 
average of 34.7 hours per respondent under the new requirements) 
primarily due to requirements to prepare and submit to the Federal 
Government for the first time two new documents: (1) the auditor's 
summary of audit findings, and (2) the data collection form. The 
auditor's summary of audit findings is required by the 1996 Amendments. 
The data collection form is required by Circular A-133 and will be used 
to capture information about Federal awards in a governmentwide 
database that will be accessible by the Congress, Federal Government, 
non-Federal entities, and the public. These data are not currently 
available, yet they are essential for making decisions about Federal 
awards, including program design and delivery and audit requirements.
    OMB estimates that approximately 80 percent of the annualized 
reporting burden cost results from statutorily-imposed requirements 
included in the 1996 Amendments, while the remaining 20 percent of the 
annualized reporting burden cost results from the new OMB-imposed 
requirement included in Circular A-133 to prepare a data collection 
form.

Necessity of the Data Collection Form

Comments:
    Federal auditors and Federal agencies supported the use of the data 
collection form as an efficient and effective means to capture 
governmentwide information about Federal awards administered by non-
Federal entities that expend $300,000 or more annually in Federal 
awards. One Federal auditor stated that the information collection is 
necessary for the Federal agency to carry out its grants management 
responsibilities. College and university commenters had mixed 
reactions, including some supporting the form and some not.
    Many State auditors and State managers strongly opposed the 
requirement to prepare a data requirement form because it is viewed as 
being unnecessary, duplicative of information included in other 
reports, and especially burdensome for large entities. One State 
auditor commented that ``Making single audit information easy for 
Federal agencies to use seems to have been the primary consideration in 
the drafting of the requirements, with less concern for the preparation 
time and costs of auditees and especially auditors.'' Another State 
auditor noted that the Federal Government should be responsible for 
categorizing audit findings by using the reporting package as the sole 
source of this information. One local government manager stated that 
the burden of ``spoon-feeding''

[[Page 35304]]

information that is already available in the reporting package to the 
Federal Government should not be borne by either auditees or auditors. 
Alternatively, the commenter recommended that the data collection form 
should be an internal document completed by reviewers of single audit 
reports at the Federal Government level.
    Most CPA commenters supported using the form to streamline the 
distribution of single audit reports and improve governmentwide 
collection and analysis of single audit results. One CPA commenter 
stated that ``We support the use of a data collection form to 
streamline distribution of audit reports and governmentwide collection 
and analysis of single audit results. Steps which increase the 
usefulness of audit results are positive for both the Federal 
Government and our profession. Tools, such as a data collection form, 
which increase the usability of audit reports serve that purpose.''
    Response: The requirement to prepare and submit a data collection 
form at the completion of the audit is included in Sec. ____.320(b) of 
Circular A-133. To streamline the distribution of audit reports and 
improve the governmentwide collection and analysis of single audit 
results, Circular A-133 provides for a data collection form to be 
prepared at the completion of each audit and submitted to the Federal 
clearinghouse designated by OMB. The data collection form will provide 
key information about the auditee, the Federal awards it administers, 
and the audit results. It will serve as the basis for developing a 
governmentwide database on covered Federal awards administered by 
States, local governments, and non-profit organizations that expend 
$300,000 or more in Federal awards annually. The database is intended 
to be used by entities responsible for overseeing the funding and 
administration of Federal awards (e.g., the Congress, Federal agencies, 
and pass-through entities) and entities responsible for administering 
Federal awards (e.g., State and government officials and board of 
directors of non-profit organizations). The information provided by the 
database is intended to be used to make better decisions about which 
Federal awards and recipients to fund in the future, identifying and 
resolving areas of noncompliance, and improving the administration and 
delivery of Federal awards.
    In addition, this information is essential in developing effective 
governmentwide audit policies over Federal awards. For example, OMB is 
required by the 1996 Amendments to perform a biennial review of the 
threshold that triggers an audit requirement, prescribe a risk-based 
approach to auditing major programs, and provide guidance on other 
matters necessary to implement the Act. OMB cannot perform its duties 
required by the Act or develop effective future audit policies without 
the information to be collected in the database.
    Initiatives, such as the Government Performance and Results Act of 
1993 and Government Management Reform Act of 1994, highlighted the need 
for the Federal Government to improve its oversight of and 
accountability for the over $220 billion of Federal awards it funds 
annually. The information provided by the database will help Federal 
agencies fulfill their grants management responsibilities.
    OMB believes that the development of a governmentwide database on 
Federal awards administered by non-Federal entities that expend 
$300,000 or more in Federal awards annually is critical. OMB also 
believes that the most efficient and effective approach to collecting 
these data is to have the auditee and auditor provide the required 
information to the Federal Government in a standardized form. An 
alternative to this approach would be to have the Federal Government 
extract the required data elements from the reporting package and enter 
the data into a database. However, OMB believes that the auditee and 
auditor are most familiar with the auditee's activities and the Federal 
awards it administers, and have a thorough understanding of the audit 
results. Therefore, it is most likely that the information would be 
more accurate if provided by the auditee and auditor than if the 
Federal Government compiled this information from the reporting 
packages.
    The data collection form also permits streamlining of the report 
distribution process. The form identifies which Federal agencies are 
required to receive a copy of the complete reporting package. When the 
schedule of findings and questioned costs disclosed no findings 
relative to the Federal awards funded by the Federal agency, and the 
summary schedule of prior audit findings did not report on the status 
of any audit findings relating to Federal awards funded by the Federal 
agency or pass-through entity (see Sec. ____.235(c) and 
Sec. ____.320(d) and (e) of the Circular for report submission 
requirements), the auditee will no longer be required to send a 
complete reporting package to each Federal agency. Without the data 
collection form (and the auditor's association with it), the Federal 
clearinghouse would have to review each reporting package submitted to 
determine which Federal agencies are required to receive a copy of the 
reporting package.

Data Collection Form Duplicates Other Reported Information

Comment
    Many commenters--mostly State auditors and colleges and 
universities--are concerned about the need to repeat information on the 
data collection form that is readily available in the reporting 
package. Many State auditors specifically identified renumbered items 
ix, x, and xi on the data collection form (Sec. ____.320(b)) as being 
the same information presented on the schedule of expenditures of 
Federal awards (Sec. ____.310(b)). They stated that providing this 
information again on the form will be a time consuming and burdensome 
effort, as the schedule of expenditures of Federal awards in some 
States can range from 17 pages (with more than 700 Federal awards) to 
over 60 pages in length. Many State auditors also stated that 
renumbered item xii on the form is also particularly burdensome. Item 
xii requires a yes or no statement as to whether there are audit 
findings and requires that the total amount of questioned costs for 
each Federal award be included in the form.
    Many State auditors suggest that the required information on the 
form be limited to only those programs with audit findings. Another 
State auditor suggested significantly reducing the required data 
elements included in the form and having the Federal Government input 
the Federal award and audit results data using the reporting package. 
This State auditor suggested that ``OMB could require that the schedule 
of expenditures of Federal awards be established in a columnar format 
with the specified data elements across the top with no subtotals 
appearing and by prohibiting the inclusion of extraneous rows and 
columns of data which have a tendency to creep in. Essentially, OMB 
could require the schedule to look like a spreadsheet containing a 
database of information.''
    Most college and university commenters stated that the data 
collection form duplicates information already available from the 
schedule of expenditures of Federal awards and auditor's reports. The 
views of many respondents are reflected in the following statement by 
one college and university commenter that recommended ``that the 
schedule of expenditures of Federal awards be expanded to incorporate 
the necessary

[[Page 35305]]

data and that information in the auditor's reports be cross-referenced 
to the schedule of expenditures of Federal awards to achieve the 
equivalent of the data collection form without creating another form.'' 
Another college and university commenter stated that ``The recapping of 
Catalog of Federal Domestic Assistance (CFDA) number and name of each 
program is entirely unwarranted. So is the requirement to list 
individual awards within a cluster. If the information is needed, it 
should be separately gathered by the authorized Federal paying 
agencies. Surely, this information is available for each recipient.''
    One Federal auditor encouraged OMB to explore the possibility of 
incorporating the schedule of expenditures of Federal awards in the 
data collection form to reduce redundancy.
    One Federal auditor, one State manager, and one CPA commenter 
stated that it was duplicative to include a summary of the auditor's 
results in the schedule of findings and questioned costs prepared by 
the auditor (required by Sec. ____.505(d)(1) of the Circular) and to 
present essentially the same information in the data collection form. 
One commenter recommended that, if the auditor prepares the data 
collection form, then the auditor's summary can be included in the data 
collection form and the requirement to include the auditor's summary in 
the schedule of findings and questioned costs can be removed from the 
Circular. One CPA commenter stated that ``Elimination of the summary of 
auditor results (data collection form would serve as the summary) could 
potentially reduce auditor time spent by one-half.''
    Several commenters suggested requiring the data collection form to 
be prepared only when there are no audit findings and submitting it in 
lieu of the complete reporting package.
    Response: OMB acknowledges that there are many duplicative aspects 
of the proposed data collection form. OMB has already begun working 
with the Federal clearinghouse to implement some of the suggestions 
provided by commenters, such as providing for the electronic submission 
of the data collection form information through the Internet and the 
electronic submission of the entire reporting package. OMB is fully 
committed to reducing or eliminating duplication in the future through 
electronic means. However, the Federal Government needs the information 
provided by the data collection form currently. Therefore, in the near 
term, reporting required by the Circular will be submitted initially to 
the Federal Government in ``hard copy.''
    The proposed revision states that the form will use a ``machine-
readable format.'' This term was removed from the Circular to provide 
the Federal clearinghouse flexibility in processing the initial data 
collections. OMB expects iterative developments in the data submission 
process which will evolve from initial hard copy submissions to 
electronic submissions.
    Section ____.320(j) of Circular A-133 states that ``Nothing in this 
part shall preclude electronic submissions to the Federal clearinghouse 
in such manner as may be approved by OMB. With OMB approval, the 
Federal clearinghouse may pilot test methods of electronic 
submissions.'' The first phase of this pilot test has already begun and 
it is concentrating on providing auditees with the means to 
electronically submit the data collection form information through the 
Internet to the Federal clearinghouse for fiscal years beginning after 
June 30, 1997. In addition, the Federal clearinghouse is working with 
certain States to develop a mechanism whereby auditees may submit the 
required information to the Federal clearinghouse in a computerized 
format or diskette for fiscal years beginning after June 30, 1997.
    The objective of the second phase will be to develop the capability 
to electronically submit the complete reporting package or key 
components of it, such as the auditee's schedule of expenditures of 
Federal awards and the auditor's schedule of findings and questioned 
costs. It is expected that, when auditees submit their reporting 
packages electronically, there will no longer be a need for the data 
collection form. However, the Federal clearinghouse will continue to 
process data collection forms for auditees that are unable or choose 
not to submit their reporting packages electronically.
    Until such time as electronic submission is available, OMB's intent 
is to simplify the preparation of the data collection form by only 
requesting information in the form that is already required to be 
included in the reporting package. While this approach results in some 
duplication, it is intended to facilitate the ease of completing the 
form and the accuracy of the information provided.
    With respect to renumbered items ix, x, and xi on the data 
collection form, OMB believes that it is necessary to capture Federal 
award information at this level of detail. The governmentwide database 
must contain information at the Federal program level so that future 
decisions about Federal awards and related audit policies (e.g., audit 
thresholds, the risk-based approach to determining major programs) can 
be made. Some commenters appeared to misunderstand the intended level 
of detail. For instance, one commenter indicated that it was onerous to 
list individual awards within a cluster of programs. Other than 
Research and Development (R&D), most clusters of programs include only 
about two or three Federal programs (CFDA numbers). For R&D, total 
Federal awards expended may be shown either by individual award or by 
Federal agency and major subdivision within the Federal agency.
    It is also important to track in the governmentwide database not 
only which Federal awards had audit findings but also an indication of 
the nature of the audit findings relative to the Federal awards. For 
this reason, renumbered item xii in the proposed form is retained. Item 
xii requires a yes or no statement as to whether there are audit 
findings and the total amount of any questioned costs related to each 
Federal award. It also requires an indication of the type of compliance 
requirement to which the audit findings relate. This information is 
critically important for monitoring Federal awards, identifying 
systemic problems, and developing future policy changes for Federal 
awards.
    In response to the comments received suggesting that the 
information in the form be limited to only those programs with audit 
findings, OMB believes that it is important that the governmentwide 
database include information about all Federal awards administered by 
auditees, not just those Federal awards with findings. The form must 
reflect each Federal award to ensure the completeness of the database, 
which will be important for future decisionmaking.
    OMB does not support the comments suggesting that the schedule of 
expenditures of Federal awards be expanded to serve in lieu of the data 
collection form and that the Federal Government input the data using 
the reporting package. Similarly, OMB does not support the suggestion 
that the form be submitted only when there are no audit findings and in 
lieu of submitting the reporting package. OMB's long term goal is to 
eliminate the data collection form for auditees that report 
electronically in the future. However, in the near term, when hard copy 
reports are submitted, OMB opposes expanding the minimum reporting 
requirements on auditees beyond those included in Sec. ____.310(b) of 
the Circular and having the Federal Government input the data

[[Page 35306]]

using the reporting package. As previously stated, OMB believes that 
the information would be more accurate if prepared by the auditee and 
auditor than if the Federal Government compiled this information from 
the reporting packages.
    In response to comments received regarding the duplication between 
information required to be included in the form and also in the summary 
of audit results required by Sec. ____.505(d)(1) of Circular, OMB 
acknowledges the duplication. However, the requirement for the auditor 
to prepare a summary of the auditor's results is contained 1996 
Amendments (31 U.S.C. 7502(g)(2)). Also, Congress intended for this 
summary to be readily available to any reader of the reporting package. 
Some commenters suggested that the data collection form could satisfy 
the Act's summary reporting requirements, rather than preparing a 
separate schedule. However, the data collection form cannot be used to 
satisfy the Act's requirement because it will not be available to all 
users of the reporting package. In fact, the form will only be sent to 
the Federal clearinghouse. Also, this duplication can be eliminated 
once reporting packages are submitted electronically.

Data Elements in the Data Collection Form

Comment
    Many comments were received addressing various data elements 
included in proposed data collection form (Sec. ____.320(b)) as 
follows: former item 2--Commenters suggested removing the requirement 
to state whether the auditor's report indicated that the auditor had 
substantial doubt about the auditee's ability to continue as a going 
concern; renumbered item vi--A commenter recommended removing the 
requirement to list which pass-through entities are required to receive 
a copy of the reporting package; renumbered item xii--A commenter 
suggested removing the list of types of compliance requirements 
(particularly the item for ``other'') into which audit findings are to 
be categorized, and including in its place a reference to the 
compliance supplement which will list the types of compliance 
requirements which the auditor is expected to test; renumbered item 
xiii--A commenter noted that it may be necessary for auditees to 
provide multiple employer identification numbers (EINs); and, 
renumbered item xv--A commenter questioned whether this item was 
necessary since every auditee will have either a cognizant or oversight 
agency for audit.
    Response: Sec. ____.320(b) of Circular A-133 was revised to reflect 
several modifications as a result of these comments. First, former item 
2 was removed from the final revision for consistency purposes because 
the requirement to report ``going concern'' information in the summary 
of the auditor's results (Sec. ____.505(d)(1)) was removed. Second, 
renumbered item vi was modified to remove the requirement to list pass-
through entities that are required to receive a copy of the reporting 
package. Third, renumbered item xii was revised to reflect the types of 
compliance requirements included in the provisional ``Circular A-133 
Compliance Supplement'' (which is Appendix B to Circular A-133). 
Fourth, renumbered item xiii was modified to indicate whether there are 
multiple EINs. While not currently required, it may be necessary in the 
future for auditees to provide each EIN covered by the form for 
identification purposes. And, finally, a clarification was made to 
renumbered item xv. It is important to distinguish between whether an 
auditee has either a cognizant or oversight agency for audit, and to 
include this information in the governmentwide datatbase because of the 
different duties assigned to cognizant and oversight agencies in 
Sec. ____.400(a) and (b) of Circular A-133.
Comment
    Suggestions were also made to add to the data collection form each 
of the matters addressed in the summary of the auditor's results, 
described in Sec. ____.505(d)(1), such as the matters discussed in 
Sec. ____.505(d)(1)(ii), Sec. ____.505(d)(1)(iii), and 
Sec. ____.505(d)(1)(iv).
    Response: Sec. ____.320(b) of Circular A-133 was revised to include 
in the data collection form each of the matters addressed in the 
summary of the auditor's results under Sec. ____.505(d)(1).

Suggested Additional Data Elements for Inclusion in the Form

Comment
    Several commenters--primarily Federal auditors and a pass-through 
entity--requested that the data collection form indicate if a 
management letter was issued. Commenters stated that management letters 
sometimes discuss significant deficiencies that are not disclosed in 
the auditor's report. One commenter requested that management letters 
be submitted to the Federal Government as part of the reporting package 
and, if that were not possible, then the data collection form should 
indicate if a management letter was issued. Conversely, two State 
auditors requested that the requirement in Sec. ____.320(f) of the 
proposed revision, which requires auditees to provide copies of 
management letters if requested by a Federal agency and pass-through 
entity, be removed from the Circular.
    Response: No changes to Circular A-133 were made as a result of 
these comments. The management letter will not be a required component 
of the reporting package (Sec. ____.320(c)) and the data elements on 
the form (Sec. ____.320(b)) will not include a statement as to whether 
or not a management letter was issued by the auditor. The Circular 
(Sec. ____.510(a)) clearly describes matters that the auditor shall 
report as audit findings in the schedule of findings and questioned 
costs. In no instance should the management letter be used as a 
substitute for reporting audit findings in the schedule of findings and 
questioned costs. OMB believes that the fundamental cause of the 
concern raised by the Federal auditors regarding the misuse of 
management letters has more to do with audit quality than with the 
content of management letters. OMB believes that it is more effective 
for Federal agencies to address the issue of audit quality (including 
adherence to professional standards and regulatory audit requirements) 
as part of their quality reviews of auditors performing audits in 
accordance with Circular.
    Also, no change was made to Sec. ____.320(f) of Circular A-133. OMB 
agrees with many commenters that it is not necessary to routinely 
submit all management letters issued by auditors. However, because 
management letters may contain information relevant to the needs of 
Federal agencies and pass-through entities to monitor Federal awards, 
the provision permitting Federal agencies and pass-through entities to 
request a copy of management letters remains unchanged in Circular A-
133.

Who Should Sign the Data Collection Form for the Auditee

Comment
    Several commenters questioned who within an auditee's organization 
would be required to sign the data collection form, particularly for 
large entities, such as a State government.
    Response: The proposed revision (Sec. ____.320(b)) provided that 
the chief executive officer or chief financial officer shall sign a 
statement that the

[[Page 35307]]

information on the form is accurate and complete. The requirement was 
modified to clearly indicate that a senior official from State or local 
government shall sign the form, as appropriate. The intent of this 
requirement is to ensure that the form is signed by a senior or 
executive level representative of the auditee that is authorized to, 
and can be held accountable for, representations made to the Federal 
Government on behalf of the auditee. The certifying official should be 
knowledgeable about the Federal awards administered by the auditee, the 
requirements of Circular A-133, and the actual audit results. In a 
State-wide single audit, it is expected that a State official (e.g., 
State controller, State treasurer) would sign the form.

Level of Form's Specificity Provided in the Circular and Supplemental 
Forms

Comment
    One Federal auditor stated that, while it was necessary to include 
specific certification language on the form to provide reviewers with 
sufficient detail to understand the proposal, the Circular should not 
contain language that is so detailed that it precludes amending the 
data collection form without revising the Circular. The commenter 
recommended removing the certification language in Sec. ____.320(b) of 
the Circular and including a provision authorizing OMB to add or remove 
data elements, as needed. A CPA commented that the final revised 
Circular should provide specific guidance on preparing the form and 
include, as an attachment, the form itself and the standard wording to 
be developed by OMB and the audit community to appropriately 
characterize the auditor's and auditee's responsibility for information 
included in the form. One college and university commenter recommended 
that OMB clearly state that the data collection form is the only form 
that can be used by Federal agencies and pass-through entities to 
gather information related to the audit and that entities may not 
develop their own supplemental forms.
    Response: Circular A-133 (Sec. ____.320(b)) identifies the data 
elements to be included in the data collection form and provides a 
general description of the auditee's certification and auditor's 
statement that will accompany the form. The data collection form to be 
used by the Federal clearinghouse will be presented as an Appendix to 
the final revised Circular A-133. The form, developed cooperatively by 
a Federal interagency task force, is the only form that may be used by 
a Federal agency for the purpose of collecting single audit data. 
However, OMB expects that the standard form may be modified in the 
future, as circumstances warrant. Any revisions require approval from 
OMB's Office of Information and Regulatory Affairs and the revised 
form, or a notice of its revision, will be published in the Federal 
Register.

Data Collection Form Sent Only to the Federal Clearinghouse

Comment
    The CPA community's support for the proposal requiring the auditor 
to prepare and sign the form was based on the understanding that the 
data collection form would be sent only to the Federal clearinghouse 
designated by OMB and not to Federal agencies and pass-through 
entities. Also, several college and university commenters urged OMB to 
permit a subrecipient to simply send a letter to a pass-through entity 
when there are no audit findings that relate to the Federal awards 
provided by the pass-through entity.
    Response: Several modifications were necessary to reflect this 
understanding in the final revision of Circular A-133. First, Circular 
A-133 now reflects that the data collection form will no longer be a 
required component of the reporting package described in 
Sec. ____.235(c)(3) and Sec. ____.320(c) of the Circular. Also, the 
requirement for subrecipients to send copies of the data collection 
form to pass-through entities was removed from Sec. ____.235(c)(3) and 
Sec. ____.320(e) of the Circular.
    When there are no audit findings that relate to a Federal award 
provided by a pass-through entity, the subrecipient is not required to 
send the reporting package to that pass-through entity. In this 
situation, without receiving the data collection form, the pass-through 
entity would not otherwise receive any audit result information about 
the Federal awards it provides to the subrecipient. Therefore, 
Sec. ____.235(c)(3) and Sec. ____.320(e) of Circular A-133 requires a 
subrecipient in this situation to inform a pass-through entity that an 
audit of the subrecipient was conducted in accordance with Circular A-
133 and that no audit findings relative to the Federal awards provided 
by the pass-through entity were reported. Examples of ways in which the 
subrecipient may communicate this information to the pass-through 
entity include: (1) writing a letter to the pass-through entity 
indicating that an audit of the subrecipient was conducted in 
accordance with Circular A-133 and that no audit findings relative to 
the Federal awards provided by the pass-through entity were reported, 
(2) submitting the complete reporting package to the pass-through 
entity, and (3) a combination of both (1) and (2).

Applicability of Freedom of Information Act and Other Federal Laws

Comment
    One CPA commenter asked whether the data collection form is 
available under the Freedom of Information Act (FOIA) and whether other 
Federal laws apply, such as those relating to false statements.
    Response: The data collection form is subject to FOIA. Also, 
representations made by auditees and auditors are subject to applicable 
penalties for false statements.

Report Copies

Comment
    One Federal auditor suggested that a copy of the report be provided 
to the Federal clearinghouse by all auditees that have cognizant 
agencies for audit (i.e., auditees that expend more than $25 million a 
year in Federal awards), so that each cognizant agency can carry out 
its responsibilities required by the Circular. A State agency commented 
that reports should be provided for every Federal agency and pass-
through entity that provided Federal awards to the auditee, regardless 
if any audit findings are reported or not. This commenter stated that 
the reports are necessary for closeout and other program monitoring 
purposes, and that this State agency will now be required to request 
all reports. The commenter also stated that this proposal to streamline 
the report distribution process places additional pressure on auditors 
to issue more reports with no audit findings.
    Response: No change was made to the number of reporting package 
copies to be sent to the Federal clearinghouse. In all instances, the 
Federal clearinghouse will retain one copy for archival purposes. If 
requested by the cognizant agency for audit, the Federal clearinghouse 
will provide a copy of the reporting package to the cognizant agency.
    OMB believes that the benefits to be achieved through report 
distribution streamlining outweigh the possible inconveniences that may 
result for some Federal agencies and pass-through entities from having 
to request report copies, as needed. Therefore, no changes to the 
proposed streamlined report distribution process were made.
Comment
    One local government manager commented that savings may result from

[[Page 35308]]

using the data collection form rather than submitting the reporting 
package to every Federal agency and pass-through entity. However, if 
those entities routinely request copies of the reporting package 
regardless of the audit results, then the savings will diminish. It was 
suggested that OMB discourage routine requests for the reporting 
packages and monitor report distribution during the next few years.
    Response: For several reasons, OMB does not expect Federal agencies 
or pass-through entities to routinely request copies of reporting 
packages that do not include audit findings or report on the status of 
prior findings relative to the Federal awards funded by the Federal 
agency or pass-through entity. First, Federal agencies and pass-through 
entities are facing resource constraints with respect to both the 
administrative capacity to collect and store reports and the 
professional capability to review and process ``no findings'' reports. 
Also, once Federal agencies and pass-through entities become familiar 
with the information that will be routinely provided to them from (or 
accessible to them through) the governmentwide database maintained by 
the Federal clearinghouse, OMB believes requests for reporting packages 
will decline. However, over the next few years, OMB will periodically 
review if the objectives of streamlining the report distribution 
process have been met.

Report Submission and Distribution

Comment
    Several commenters requested clarification regarding the report 
submission requirements.
    Response: Sec. ____.320 (d) and (e) of the proposed revision were 
modified slightly to reflect the following report submission 
requirements. In all instances, an auditee is required to submit, at a 
minimum, the data collection form and one copy of the reporting package 
to the Federal clearinghouse. An auditee is also required to submit to 
the Federal clearinghouse a copy of the reporting package for each 
Federal awarding agency when there are audit findings reported in the 
auditor's schedule of findings and questioned costs, or the auditee's 
summary of prior audit findings reports on the status of any audit 
findings, relating to the Federal awards that the Federal awarding 
agency provided directly. The Federal clearinghouse will be responsible 
for actually distributing the reporting packages to the appropriate 
Federal agencies.
    Where the auditee is also a subrecipient, the subrecipient shall 
submit a copy of the reporting package to each pass-through entity when 
there are audit findings reported in the auditor's schedule of findings 
and questioned costs, or the auditee's summary of prior audit findings 
reports on the status of any audit findings, relating to the Federal 
awards provided by the pass-through entity. When there are no audit 
findings reported in the auditor's schedule of findings and questioned 
costs and the auditee's summary schedule of prior audit findings does 
not report on the status of any audit findings relating to the Federal 
awards provided by the pass-through entity, the subrecipient is not 
required to submit the reporting package to the pass-through entity, 
unless the pass-through entity requests a copy under Sec. ____.320(f). 
However, if the subrecipient chooses not to submit the reporting 
package to the pass-through entity in these circumstances, the 
subrecipient must inform the pass-through entity, in writing, that an 
audit of the subrecipient was conducted in accordance with Circular A-
133, and that no audit findings were reported (nor was the status of 
any prior audit finding reported) that relate to the Federal awards 
provided by the pass-through entity.
    To illustrate the report submission process, suppose an auditee 
administers four Federal awards. The first program is provided directly 
to the auditee from the U.S. Department of Health and Human Services 
(HHS), and the auditor reported audit findings relating to this 
program. The second program is provided directly to the auditee from 
the U.S. Department of Education (ED), and no audit findings have ever 
been reported relating to this program. The third program is provided 
to the auditee by a State agency, or pass-through entity, funded by the 
U.S. Department of Labor, and audit findings were reported relating to 
this program. The fourth program is provided to the auditee by a local 
government pass-through entity funded by the U.S. Department of 
Agriculture, and no audit findings have ever been reported relating to 
this program. In this example, the auditee would be required to submit 
to the Federal clearinghouse a data collection form and two copies of 
the reporting package (one for the Federal clearinghouse to retain for 
archival purposes and one for the Federal clearinghouse to distribute 
to HHS). The auditee would also be required to submit a reporting 
package to the State agency because audit findings were reported that 
relate to the third program and the State agency needs the reporting 
package to ensure appropriate resolution of the audit findings. With 
respect to the fourth program, the auditee could either send the 
reporting package to the local government, or send some form of written 
communication stating that the audit was conducted in accordance with 
the Circular and no audit findings were reported relating to the fourth 
program.

Federal Clearinghouse Responsibilities

Comment
    A few college and university commenters requested that the Federal 
clearinghouse be responsible for supplying all report copies to Federal 
agencies and pass-through entities. One commenter suggested that the 
Federal clearinghouse provide reporting packages in electronic form 
accessible to potential users through the Internet. Another respondent 
requested more specific information about acceptable forms of 
electronic submissions.
    Response: Until such time as the reporting packages are available 
in electronic form, it is not feasible for the Federal clearinghouse to 
be responsible for distributing reporting packages to pass-through 
entities. It is possible, however, that once reporting packages are 
available electronically, there may not be a continued need for pass-
through entities to receive ``hard paper copies'' of the reporting 
packages. As previously noted, the Federal clearinghouse expects to be 
capable of processing reporting packages electronically for audits of 
fiscal years beginning after June 30, 1998.

Requirement for the Auditor To Prepare and Sign the Data Collection 
Form

Comment
    In the preamble of the proposed revision, OMB stated that it was 
considering adding a provision that requires the auditor (rather than 
the auditee) to prepare and sign the data collection form and requested 
respondents to comment on this proposal. OMB received approximately 45 
comments --'' more than any other individual issue included in the 
November 5, 1996, Federal Register publication --'' in response to this 
proposed requirement.
    All Federal auditors and State governments, and most CPAs and 
Federal agencies supported this proposal. Many of these respondents 
commented that the auditor should prepare and sign the sections of the 
form that relate to the audit results, and that, even if the auditor 
prepares and

[[Page 35309]]

signs sections of the form, the auditee should also be required to sign 
the form certifying to the completeness and accuracy of the entire 
form.
    Federal auditors, Federal agencies, and State governments cited the 
following reasons for supporting the proposal for auditors to prepare 
and sign the form: (1) greater assurance as to the accuracy of the form 
and the governmentwide database, (2) greater efficiency in preparing 
the form, (3) more streamlined audit reporting achieved by having the 
auditor sign the form rather than issuing a separate report describing 
the auditor's association with and responsibility for the form, (4) 
more timely data collection, and (5) reduced need for independent 
verification of data included in the governmentwide database by Federal 
agencies. One Federal agency supported having the auditor prepare the 
form but did not support requiring the auditor to sign the form. 
Reasons cited included that the proposal is ``contrary to and 
inconsistent with the Government's long-established practice of 
requiring the institution [auditee], not the auditor, to sign existing 
certifications' and that the proposal raises new concerns about the 
auditor's litigation liability, which will take time to research and 
resolve.
    Most CPA commenters indicated that independent auditor association 
with the form would enhance its usefulness. However, most CPA 
commenters and some Federal auditors and Federal agencies were 
concerned that certain report users may view the information contained 
in the form as a substitute for reading the full auditor's reports, 
which present a more complete picture of the auditor's testing and 
findings. These commenters also stated their belief that a form can be 
developed that would meet the needs of OMB and Federal agencies and 
also address the concerns of the CPA community. Commenters strongly 
encouraged OMB to work with the American Institute of Certified Public 
Accountants (AICPA), the Inspectors General, Federal agencies, and 
other interested parties to develop a useful data collection form, and 
many commenters offered to assist OMB in this effort.
    Several CPA commenters suggested that, to provide appropriate 
protection to auditors, the auditor signature section of the form 
should possess certain elements including: (1) a statement that certain 
information included in the form is based on the auditor's reports and 
is not a substitute for such reports, (2) a statement concerning the 
availability of the auditor's reports, (3) a statement that the content 
of the form is limited to information prescribed by OMB, and (4) a 
clear indication of which information is being provided by the auditor 
versus that which is the responsibility of the auditee. CPA commenters' 
support for this proposal was based on the understanding that: (1) the 
form would be sent only to the Federal clearinghouse and not to Federal 
agencies and pass-through entities, and (2) acceptable language would 
be added to the form to appropriately characterize the nature of the 
information included in the form and the auditor's and auditee's 
responsibility for information included in the form. One CPA commenter 
did not support the proposal stating that it ``is beyond the scope of 
reporting required by professional and governmental auditing 
standards.''
    Most State auditors and one professional organization commented 
that they were strongly opposed to requiring the auditor to prepare and 
sign the data collection form. Reasons cited included: (1) the 
requirement for the auditee to prepare and sign the form emphasizes the 
auditee's responsibility for administering Federal funds in compliance 
with the law, ensuring the accuracy and completeness of information 
provided to the Federal Government, and resolving deficiencies 
uncovered by audits; (2) the type of information required by the form 
is readily available and should be clearly understood by the auditee; 
(3) if the auditor is required to sign the form, the auditor's legal 
liability exposure may increase, which will result in increased audit 
fees; (4) it is not justified to reduce burden on auditees by 
increasing the burden on auditors; (5) if the auditor is required to 
prepare the form, the auditor's independence may be questioned and the 
distinction between management and auditor responsibilities may be 
blurred; and, (6) it is uncertain whether the auditor or auditee can 
prepare the form more efficiently.
    One State auditor commented that ``We see it [the requirement for 
the auditee to prepare and sign the form] as the first step in a 
process that will ultimately result in auditees' providing management 
assertions on internal controls and compliance regarding their use of 
Federal funds * * * We view the requirement for the auditee to prepare 
the data collection form as a kind of ``homework assignment'' by which 
auditee personnel will read the auditor's reports and start to 
understand the significance of the issues covered in those reports * * 
* Therefore, we are quite concerned with OMB's suggestion * * * [to 
require] the auditor to prepare and sign the data collection form.''
    Several State auditors suggested alternatives to the proposal for 
the auditor to prepare and sign the form including: (1) requiring the 
auditee to prepare the form and have the auditor review the form (but 
not as a separate engagement) for accuracy in relation to the auditee's 
financial statements taken as a whole, for limited distribution to the 
Federal Government; (2) requiring the auditee to prepare the form and 
have the auditor issue a separate letter of assurance on the form 
regarding its reasonableness; (3) removing the requirement to prepare 
the form and requiring the auditee to send a transmittal letter along 
with the audit report to the Federal Government, stating that the audit 
was completed in accordance with the single audit requirements; (4) 
presenting certain summary information on the form with no signature by 
either the auditee or auditor, and having the auditee sign a separate 
form asserting that an audit in accordance with Circular A-133 was 
performed; (5) adding a provision to the financial reporting section of 
the compliance supplement directing the auditor to verify the 
completeness and accuracy of the form; and, (6) requiring the auditee 
to prepare the form and having the auditor sign it, provided that the 
auditor's signature is accompanied by standard language specifically 
describing and limiting the assurance the auditor is providing by 
signing the form.
    Several State auditors supported the proposal for the auditor to 
sign the form, provided that the form includes ``liability limiting 
statements'' similar to the wording suggested by the CPA commenters, 
and indicated that it would be more efficient for auditors to prepare 
the form.
    Two college and university commenters opposed the proposal stating 
that many colleges and universities could readily prepare the form 
similar to other documents they are required to prepare (e.g., the 
schedule of Federal awards and corrective action plans) and that the 
additional cost for the auditor to prepare the form is not justified 
compared to the benefit received. However, one of these college and 
university commenters also indicated that having the auditor prepare 
the form would add to its accuracy and greatly assist many auditees and 
suggested a more flexible solution to permit either the auditor or 
auditee to prepare the form (at the option of the auditee) and require 
the auditor to sign the form as a reviewer. One college and university 
commenter indicated that neither the auditors nor auditees want to 
prepare the form

[[Page 35310]]

because of the additional cost but that, if OMB decides to require the 
form, then the auditor would be the logical choice to prepare the form.
    One local government commented that the single audit is a 
collaborative effort between auditors and auditees and that the process 
used to prepare and sign the form should be similar to procedures used 
to satisfy other single audit requirements. Specifically, the commenter 
suggested that the auditee prepare the form with the assistance of the 
auditor and that both sign the form.
    Response: Auditor association with the data collection form is 
essential to streamlining the audit report distribution process and 
ensuring the accuracy of the governmentwide database. However, OMB 
agrees with the view of many commenters that the auditee is primarily 
responsible for ensuring the accuracy and completeness of Federal award 
information submitted to the Federal Government, and that this 
responsibility should not be diminished. Therefore, the requirement for 
the auditee to sign a statement included in the form that acknowledges 
the auditee's responsibility for the entire form and certifies its 
completeness and accuracy remains in Sec. ____.320(b) of Circular A-
133. In addition, the proposal requiring the auditor to prepare and 
sign the sections of the form that relate to the auditor's results and 
the Federal awards was adopted in the final revision of Circular A-133 
(Sec. ____.320(b)(3)). The Circular also states that the auditee is 
responsible for submitting the data collection form and reporting 
package to the appropriate parties (Sec. ____.320(d) and (e)).
    OMB commits to working with the audit community (e.g., Inspectors 
General, AICPA, State auditors), Federal agencies, and other interested 
parties to finalize language on the form to appropriately characterize 
the auditor's and auditee's responsibility for information on the form. 
As a starting point, OMB used the recommendations provided by one CPA 
commenter for the auditor's standard language including: (1) a 
statement that certain information included in the form is based on the 
auditor's reports and is not a substitute for such reports, (2) a 
statement concerning the availability of the auditor's reports, (3) a 
statement that the content of the form is limited to information 
prescribed by OMB, and (4) a clear indication of which information is 
being provided by the auditor versus that which is the responsibility 
of the auditee. OMB concurs with several CPA commenters that stated 
that the auditor's exposure to litigation regarding association with 
the form could be reduced by incorporating acceptable standard language 
in the form.

Increased Costs for Auditors To Prepare and Sign Form

Comment
    Several respondents commented that requiring the auditor to prepare 
and sign the data collection form will result in increased audit costs. 
One CPA stated that the proposal ``is perceived as increasing auditor 
responsibility without increasing the value of the audit for which the 
auditee would be willing to compensate the auditor.'' One State auditor 
commented that ``it is misleading to consider requiring the auditor to 
do this [prepare the form] while speculating that it will not 
significantly increase audit costs. The auditor is entitled to charge 
for the time associated with preparing the form and for assuming the 
increased liability of associating his name with the information on the 
form.'' One State manager stated that, if the requirement to prepare 
the data collection form remains, the auditor should be responsible for 
the data collection provided OMB determines ``a true-cost benefit of 
this requirement before implementing it.''
    Several college and university commenters stated that the 
preparation of a data collection form will result in increased and 
unreimbursable audit costs at a time when many organizations have 
reached or exceeded the administrative cap under the Facilities and 
Administrative reimbursement rate.
    One Federal auditor commented that ``we believe that 
``experienced'' auditors should be able to provide at a reasonable cost 
the information requested on the data collection form.'' One Federal 
agency commenter stated that ``The additional cost of completing this 
form is expected to be insignificant, particularly when its intended 
use is considered.''
    Response: OMB acknowledges that there are costs associated with the 
new requirement to prepare the data collection form. Using an average 
rate per hour of $25 per hour for auditees and $70 per hour for 
auditors, OMB estimates that the cost for auditor's to prepare and sign 
specified sections of the form is $7.3 million and the cost for 
auditees to prepare specified sections of the form and sign it is $1.2 
million, for a total cost of $8.5 million.
    OMB believes the decision to require the form is justified for 
several reasons. First, costs will be fully or partially offset by the 
savings realized from implementing other provisions of the 1996 
Amendments and the revised Circular A-133. Examples of opportunities 
for savings include: the reduced scope of audits of low-risk auditees; 
the elimination of auditing and reporting requirements previously 
associated with non-major programs; and, the elimination of the 
requirement to report all matters of noncompliance, regardless of 
significance. Second, the data collection form, including the auditor's 
association with it, is essential to streamlining the historical report 
distribution and review processes and reducing associated burden. 
Finally, OMB believes that the data collection form, including the 
auditor's association with it, is essential to the development of a 
reliable governmentwide database that is critical to effective Federal 
award administration.
    With respect to comments received from several colleges and 
universities stating that this new requirement may result in 
unreimbursed audit costs because their administrative caps have been 
reached, OMB suggests that auditees consider discussing with their 
auditor whether any increases due to preparing the data collection form 
will be offset by: audit cost savings associated with reduced scope of 
audit work for a low-risk auditee, the auditor having to audit fewer 
programs under the risk-based approach, a reduction of audit work and 
related reporting for Federal programs not considered major, and the 
removal of the requirement to report all instances of noncompliance.
    It will take several years for OMB to determine the actual ``cost-
benefit'' of this new requirement. However, OMB believes that it is 
important to implement this reporting requirement as part of the final 
revision of Circular A-133, rather than postpone implementation until a 
later date. The estimates presented in Table 1 are based on the best 
information available to date. OMB will reevaluate the burden estimates 
within the next three years (the sunset date for resubmission for 
approval under the Paperwork Reduction Act of 1980, as amended) using 
actual results.

Retention of Audit Workpapers

Comment
    One Federal auditor requested that Federal awarding agencies be 
added to the list of entities that may notify the auditor to retain the 
working papers beyond three years.
    Response: No change was made to the Circular as a result of these 
comments. OMB believes that requests by Federal awarding agencies for 
auditors to retain working papers beyond the minimum

[[Page 35311]]

period should be coordinated through either the cognizant or oversight 
agency for audit.

Schedule of Expenditures of Federal Awards

Comment
    One State auditor commented that the State's accounting system 
could not capture Federal award expenditure information and requested 
that the Circular permit alternatives methods of reporting Federal 
award information, such as reporting receipts.
    Response: No change was made to the Circular based on this comment. 
Auditees shall report the amount of expenditures of Federal awards. 
This information is important to Federal agencies and pass-through 
entities and the amount of Federal award expenditures is critical to 
every monetary determination required by the Circular (e.g., the 
threshold that triggers a Circular A-133 audit requirement, and the 
dollar threshold used to distinguish Type A and Type B programs using 
the risk-based approach to determining major programs). Also, the 
requirement to report Federal award expenditures is consistent with the 
financial management systems requirements of Sec. ____.20 in the Grants 
Management Common Rule, published March 11, 1988 (53 FR 8034) and 
amended April 19, 1995 (60 FR 19638), whereby States' systems should 
permit accounting for expenditures to a level sufficient to demonstrate 
compliance with applicable laws and regulations.
Comment
    Several commenters interpreted the proposal as requiring that the 
schedule of expenditures of Federal awards include information about 
the amount of Federal funds awarded (rather than Federal awards 
expended), and that such information be presented by award year. One 
commenter asked whether the information requested by Federal agencies 
and pass-through entities to be included on the schedule was limited to 
the minimum requirements or whether such requests could include 
additional information.
    Response: A change was made to Sec. ____.310(b) to clarify that the 
schedule requires presentation of the amounts of Federal awards 
expended, rather than the amounts awarded. Also, Sec. ____.310(b) was 
modified to indicate that an auditee may choose to provide information 
requested by Federal agencies and pass-through entities to make the 
schedule easier to use. However, the auditee is not required by the 
Circular to provide information beyond the minimum requirements 
described in Sec. ____.310(b).
Comment
    Sec. ____.310(b)(1) of the proposed revision requires that the 
schedule of expenditures of Federal awards list individual Federal 
programs by Federal agency and major subdivision within a Federal 
agency. Many respondents strongly opposed the requirement to provide 
the major subdivision within a Federal agency. Reasons cited include 
that this information is readily available to the Federal Government 
through the CFDA numbers and that it is particularly onerous for large 
entities, such as States, to provide this information for each 
individual Federal program.
    Response: The requirement to list each individual Federal program 
by major subdivision within a Federal agency was removed from 
Sec. ____.310(b)(1) of the Circular, except for the R&D program 
cluster. This revision reduces reporting burden for many auditees that 
administer a large number of Federal awards. For the R&D program 
cluster, auditees are provided the option of reporting Federal awards 
expended either by individual Federal award or by Federal agency and 
major subdivision within the Federal agency. This option reduces burden 
on auditees that administer a large number of R&D awards, such as 
certain colleges and universities, by permitting summary reporting at 
the Federal agency and major subdivision level. Federal awarding 
agencies and pass-through entities providing R&D awards should assist 
auditees in identifying major subdivisions within the Federal agency 
responsible for such awards.
Comment
    Several commenters opposed the proposal included in 
Sec. ____.310(b)(5) which requested, to the extent practical, pass-
through entities to identify on the schedule of expenditures of Federal 
awards the total amount provided to subrecipients from each Type A 
program and each Type B program audited as major. This provision was 
perceived as burdensome. One CPA commenter was concerned that, if such 
information were provided for all Type A programs, including those Type 
A programs that were not audited as major, then the auditor would be 
required to report on a schedule that includes unaudited information.
    Response: A change was made to the Circular as a result of these 
comments. The proposal requested auditees to provide information about 
amounts provided to subrecipients from each Type A program and each 
Type B program audited as major. The final revision to Circular A-133 
requests this information for each Federal program. This change was 
made to simplify the requirement but does not necessarily increase 
burden on auditees because the information is not mandatory. This 
information should be included on the schedule, to the extent 
practical. In response to a CPA's concern, the schedule of expenditures 
of Federal awards includes information about each of the Federal awards 
administered by the auditee, not just those audited as major. OMB does 
not believe that presenting information about amounts provided to 
subrecipients is different from other information included in the 
schedule relating to programs that were not audited as major.

Summary Schedule of Prior Audit Findings

Comment
    Several State auditors and State agencies questioned the need for a 
separate schedule reporting the status of prior audit findings. One 
State auditor noted that requiring the auditor to report any material 
misrepresentations made by the auditee in the schedule will increase 
pressure on auditors and strain their relationship with the auditee. A 
State agency commented that the information in the new summary schedule 
of prior audit findings is also included in other required reports and 
recommended that the cognizant agency for audit be responsible for 
reviewing and approving follow-up actions outlined in the corrective 
action plan. One Federal auditor noted the importance of continuing to 
report deficiencies until the finding is adequately resolved and 
suggested that the schedule also include a description of the means 
used to substantiate the audit finding resolution.
    Response: No change was made to Sec. ____.315 of the Circular as a 
result of these comments. It is important for the auditee to report on 
the status of prior audit findings in a consistent and systematic 
manner. It is also important that the auditor assess the fairness of 
management's representations included in the schedule, as required by 
Sec. ____.500(e) of the Circular.

Summary of the Auditor's Results

Comment
    One Federal auditor recommended revising the Circular to require 
the auditor to provide a narrative summary at the beginning of the 
single audit reporting package. One State auditor opposed the 
requirement to prepare a

[[Page 35312]]

summary of auditor's results and commented that the Federal Government 
could obtain this information by reviewing the documents included in 
the reporting package.
    Response: No change was made to Sec. ____.505(d)(1) of the Circular 
as a result of these comments. The 1996 Amendments include a provision 
(31 U.S.C. 7502(g)(2)) whereby ``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.'' OMB believes that the summary of auditor's results 
prescribed by Sec. ____.505(d)(1) of the final revision satisfies the 
requirements of the 1996 Amendments, and will facilitate consistency 
and uniformity of the summary information provided to Federal awarding 
agencies and pass-through entities and captured in the governmentwide 
database.

Auditor's Schedule of Findings and Questioned Costs

Comment
    Several State auditors indicated that the requirements described in 
Sec. ____.505(d) (2) and (3) of the proposed revision may result in 
duplicative and more cumbersome audit reporting and, as a result, 
increased audit costs.
    Response: No changes were made to the Circular as a result of these 
comments. The purpose of Sec. ____.505(d) of the Circular is to present 
the results of audit in one location or schedule. In the past, this 
information was presented in a variety of locations throughout the 
auditor's reports. This provision of the Circular prescribes where this 
information must be reported and provides guidance on reporting audit 
findings that relate to the same issue and that relate to matters 
affecting both the financial statements and the Federal awards 
administered by the auditee. OMB believes the reporting requirements 
included in the Circular will improve the usefulness and uniformity of 
audit reports.

Report Due Date

Comment
    Many respondents--mostly State managers and college and university 
commenters--stated that shortening the report due date from 13 months 
to nine months after the end of the audit period was unrealistic and 
that it will adversely affect audit scheduling and workloads, increase 
audit costs and burden on auditees, and may result in increased 
noncompliance by subrecipients. Many commenters suggested that the 13-
month report due date be retained in the Circular and that, if the due 
date must be shortened, then a 12-month due date would be more 
acceptable. One local government suggested granting an automatic 
extension of the report due date to auditees that expend over $25 
million in Federal awards. A Federal agency stated that a six-month 
report due date should be imposed and that the two-year transition 
period is unnecessary.
    Response: No change was made to the Circular as a result of these 
comments. The report due date is prescribed by the 1996 Amendments (31 
U.S.C. 7502(h)). The 1996 Amendments require the report to be submitted 
within the earlier of 30 days after receipt of the auditor's report, or 
nine months after the end of the audit period for audits of fiscal 
years beginning after June 30, 1998. A transition period of at least 
two years is provided in the 1996 Amendments whereby the report shall 
be submitted within the current 13-month due date (or 30 days after the 
receipt of the auditor's report, if earlier). OMB believes that the 
transition period of two years is sufficient for most auditees to meet 
the new report due date. However, cognizant or oversight agencies for 
audit may provide extensions to auditees.
Comment
    One State auditor commented that total audit hours will increase as 
a result of preparing a data collection form, and ``Since our audit 
resources are limited, any increase in audit hours is likely to make it 
more difficult for us to meet the 9-month reporting deadline required 
by Sec. ____.320(a) of the Circular.''
    Response: As presented in Table 1, OMB estimates the average number 
of auditor hours necessary to prepare and sign the appropriate sections 
of the data collection form to be 24 hours for auditees that administer 
a large number of Federal awards and four hours for other auditees. 
Moreover, the requirements of the 1996 Amendments and the final 
revision to Circular A-133 are designed to reduce audit burden by 
decreasing the number of entities subject to audit and improving the 
effectiveness of the audit requirements. Accordingly, OMB believes that 
the two-year transition period is sufficient for most auditors to 
incorporate the data collection form preparation requirements into 
their audit plans so that the work can be completed within the nine-
month due date.

Effective Date for the Data Collection Form Requirement

Comment
    One Federal auditor stated that it was not clear from reading the 
proposed revision when the proposed requirement to prepare and submit 
the data collection form would be effective.
    Response: The requirement to prepare and submit a data collection 
form will be effective for audits of fiscal years beginning after June 
30, 1996.
    The proposed data collection form and its instructions follow.
John A. Koskinen,
Deputy Director for Management.

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                                       Table 1.--Reporting Burden Estimate                                      
----------------------------------------------------------------------------------------------------------------
                                                                            New burden                          
                                                             ---------------------------------------            
                                                                Auditees                              Change in 
                                                   Existing      with a                                 burden  
                                                    burden       large        Other        Total       increase 
                                                               number of     auditees     auditees    (decrease)
                                                                programs                                        
----------------------------------------------------------------------------------------------------------------
Number of Auditees.............................       35,000          200       24,800       25,000     (10,000)
Number of Auditors.............................       35,000          200       24,800       25,000     (10,000)
Auditee hours to prepare reporting package.....           16           48           16       1 16.3           .3
Auditee hours to prepare & sign data collection                                                                 
 form..........................................  ...........            6            2        1 2.0          2.0
Auditor hours to prepare auditor's reports.....           10           40           12       1 12.2          2.2
Auditor hours to prepare & sign data collection                                                                 
 form..........................................  ...........           24            4        1 4.2          4.2
Average hour burden per respondent.............           26          118           34       1 34.7          8.7
                                                ----------------------------------------------------------------
    Total burden hours.........................      910,000       23,600      843,200      866,800    (43,200) 
----------------------------------------------------------------------------------------------------------------
\1\ Weighted average.                                                                                           


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[FR Doc. 97-16966 Filed 6-27-97; 8:45 am]
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