[Federal Register Volume 67, Number 155 (Monday, August 12, 2002)]
[Notices]
[Pages 52545-52547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20258]


-----------------------------------------------------------------------

OFFICE OF MANAGEMENT AND BUDGET


Audits of States, Local Governments, and Non-Profit Organizations

AGENCY: Office of Management and Budget.

ACTION: Proposed revisions to OMB Circular A-133.

-----------------------------------------------------------------------

SUMMARY: This Notice proposes to revise Office of Management and Budget 
(OMB) Circular A-133, ``Audits of States, Local Governments, and Non-
Profit Organizations,'' by (1) increasing the threshold for audit from 
$300,000 to $500,000, (2) increasing the threshold for cognizant agency 
for audit from $25 million to $50 million, and (3) making related 
technical changes to facilitate the determination of cognizant agency 
for audit and provide for Federal agency reassignment of oversight 
agency for audit.

DATES: All comments on this proposal should be in writing, and must be 
received by October 11, 2002. It is planned that the proposed revisions 
shall apply to audits of fiscal years ending after December 31, 2003, 
and earlier implementation will not be permitted.

ADDRESSES: Due to potential delays in OMB's receipt and processing of 
mail sent through the U.S. Postal Service, we encourage respondents to 
submit comments electronically to ensure timely receipt. We cannot 
guarantee that comments mailed will be received before the comment 
closing date.
    Electronic mail comments may be submitted to: tramsey@omb.eop.gov. 
Please include ``A-133 Comments'' in the subject line and the full body 
of your comments in the text of the electronic message and as an 
attachment. Please include your name, title, organization, postal 
address, telephone number, and E-mail address in the text of the 
message. Comments may also be submitted via facsimile to 202-395-4915.
    Comments may be mailed to Terrill W. Ramsey, Office of Federal 
Financial Management, Office of Management and Budget, Room 6025, New 
Executive Office Building, Washington, DC 20503.
    A copy of the current Circular A-133 published in the Federal 
Register on June 30, 1997 (62 FR 35277), is available on the Internet 
at http://www.omb.gov and then select ``Grants Management.''

FOR FURTHER INFORMATION CONTACT: Terrill W. Ramsey, Office of Federal 
Financial Management, Office of Management and Budget, telephone 202-
395-3812 (direct) or 202-395-3993 (main office) and e-mail: 
tramsey@omb.eop.gov.

SUPPLEMENTARY INFORMATION:
    A. Increase the Threshold for Audit from $300,000 to $500,000--OMB 
proposes to increase the audit threshold amount from $300,000 to 
$500,000.
    The Single Audit Act Amendments of 1996, 31 U.S.C. 7502(a)(3), 
provide for the Director of OMB to review the single audit threshold 
and increase it as appropriate. The current audit threshold requires 
all non-Federal entities (States, local governments, and non-profit 
organizations) that expend $300,000 or more in a year in Federal awards 
to have an audit conducted in accordance with Circular A-133.
    As shown in the following table, an audit threshold increase from 
$300,000 to $500,000 would relieve almost 6,000 entities from the audit 
requirements of Circular A-133 while only exempting from audit less 
than one half of one percent of Federal awards expended (in dollars) by 
entities currently filing Circular A-133 audits.

[[Page 52546]]



------------------------------------------------------------------------
                                                              Percent of
                                    Number of    Percent of    Federal
                                     entities     entities      awards
  Federal awards expended range       filing       filing      expended
                                     reports      reports       within
                                                                range
------------------------------------------------------------------------
$300,000 to $500,000.............        6,000           18           .5
$500,000 and above...............       28,000           82         99.5
                                  --------------------------------------
    Total........................       34,000          100        100.0
------------------------------------------------------------------------

    (The above data was compiled by the Federal Audit Clearinghouse 
(FAC) from its database of Circular A-133 audit submissions for non-
Federal entity fiscal years ending in 2000. The FAC database is 
publicly accessible on the Internet at http://harvester.census.gov/sac.)
    Many pass-through entities use Circular A-133 audit results as a 
primary tool in ensuring compliance for Federal awards passed through 
to a subrecipient. With the proposed increase in the audit threshold, 
subrecipients expending between $300,000 and $500,000 will no longer be 
required to have an audit under Circular A-133 so their pass-through 
entities will not be able to use the Circular A-133 audit as a 
monitoring tool.
    However, the Circular A-133 audit is only one of many subrecipient 
monitoring tools available and subrecipient monitoring should occur 
throughout the year rather than relying solely on a once-a-year audit. 
Monitoring activities may take various forms; however, a first 
monitoring tool should be identifying to the subrecipient the Federal 
award information (e.g., Catalog of Federal Domestic Assistance (CFDA) 
title and number, award name, name of Federal agency) and applicable 
compliance requirements. Other monitoring tools include reviewing 
financial and performance reports submitted by the subrecipient, 
performing site visits to the subrecipient to review financial and 
programmatic records and observe operations, and arranging for agreed-
upon procedures engagements for certain aspects of subrecipient 
activities, such as eligibility determinations as described in 
Sec. ____.230(b)(2) of Circular A-133. Factors such as the size of 
awards, percentage of the pass-through entity's total program funds 
awarded to subrecipients, the complexity of the compliance 
requirements, and risk of subrecipient non-compliance as assessed by 
the pass-through entity may influence the nature and extent of 
monitoring procedures. Additionally, Federal laws or regulations may 
impose subrecipient monitoring requirements specific to a Federal 
program.
    The OMB Circular A-133 Compliance Supplement, Chapter 6, provides a 
list of typical internal controls for subrecipient monitoring. The 
Compliance Supplement is available on the Internet at http://www.omb.gov and then select ``Grants Management.'' Additionally, OMB 
plans to request one or more single audit constituent groups to 
volunteer to develop additional tools and techniques which pass-through 
entities may use to monitor their subrecipients.
    B. Increase the Threshold for Cognizant Agency for Audit from $25 
Million to $50 Million--OMB proposes to increase the threshold for 
cognizant agency for audit from $25 million to $50 million.
    Currently, recipients (non-Federal entities that expend Federal 
awards received directly from a Federal awarding agency) which expend 
more than $25 million a year in Federal awards have a Federal agency 
designated as their cognizant agency for audit. All other non-Federal 
entities have a Federal agency as their oversight agency for audit. 
(Cognizant agency for audit and oversight agency for audit 
responsibilities are described in paragraphs Sec. ____.400(a) and (b) 
of Circular A-133, respectively.) The basic difference is that a 
cognizant agency for audit is required to perform certain oversight 
functions as listed in Circular A-133 and an oversight agency for audit 
is given the option to assume these responsibilities. The only 
responsibility the oversight agency for audit is required to perform is 
to provide technical advice to auditors and auditees upon request.
    Of the approximately 34,000 non-Federal entities currently filing 
Circular A-133 audits, approximately 1,000 have a cognizant agency for 
audit. Increasing this threshold from $25 million to $50 million will 
reduce the number of non-Federal entities with a cognizant agency for 
audit assignments to approximately 500. This change will allow the 
Federal agencies to provide more focused audit oversight where there is 
the greatest risk in terms of Federal awards expended but still provide 
each non-Federal entity with an assigned oversight agency for audit 
from which to request technical advice.
    (Note, whether an entity has a cognizant agency for audit for a 
fiscal year is determined based on the expenditures for that fiscal 
year, not whether they met the threshold for cognizant agency for audit 
in the base year (see next paragraph for discussion of ``base year''). 
For example, under the current threshold of $25 million, if a non-
Federal entity had only $20 million Federal awards expended in 2002, 
they would not have a cognizant agency for audit for that year even if 
they had greater than $25 million in Federal awards expended in the 
base year of 2000. Similarly, if the cognizant agency for audit 
threshold is increased effective for fiscal years ending after December 
31, 2003, only non-Federal entities with Federal awards expended 
greater than $50 million will have a cognizant agency for audit for 
those years. The cognizant agency for audit would continue to be the 
Federal agency that provided the predominant amount of direct funding 
in the base year.)
    C. Technical Change--Base Year for Cognizant Agency for Audit 
Determination--OMB proposes to change the base year for cognizant 
agency for audit determination from one to two years before the start 
of the five year audit cognizance period. This change is needed to 
provide sufficient time to make cognizant agency for audit 
determinations before the start of the audit cognizance period.
    Cognizant agency for audit is based upon which Federal agency 
provides the predominant amount of direct Federal awards funding to a 
recipient in the base year. For example, cognizant agency for audit 
determinations for the years 2001 through 2005 were based upon which 
Federal agency provided the predominant amount of Federal awards 
expended in the base years ending in 2000. Since Circular A-133 reports 
for the non-Federal entities' fiscal years ending December 31, 2000 
were not required to be filed until September 30, 2001, it was not 
possible to produce a cognizant agency for audit assignment list at the 
start of 2001.

[[Page 52547]]

    Under the proposed change, 2004 will be the base year for 
determining the cognizant agency for audit for 2006 through 2010. All 
fiscal year 2004 Circular A-133 reports are due to the FAC on or before 
September 30, 2005. This will provide sufficient time for Federal 
agencies to use the FAC database to produce a cognizant agency for 
audit list for the 2006 through 2010 audit cognizance period at the 
start of 2006. (Note, the base year for 2001 through 2005 will remain 
at 2000.)
    D. Technical Change--Oversight Agency for Audit reassignment--OMB 
proposes to change the definition of oversight agency for audit to 
permit Federal agencies to make reassignments.
    Currently Circular A-133 definitions do not specifically provide 
for the reassignment of oversight agency for audit. The proposed 
revision would explicitly provide for the reassignment of oversight 
agency for audit by Federal agencies similar to the reassignment of 
cognizant agency for audit.

    Dated: July 31, 2002.
Mark W. Everson,
Controller.

    Circular A-133 is proposed to be revised as follows:
    1. In the following sections, replace $300,000 with $500,000: 
Sec. __.200(a); Sec. __.200(b); Sec. __.200(d); Sec. __.230(b)(2); and 
Sec. __.400(d)(4).
    2. In section Sec. __.400(a), first sentence, replace $25 million 
with $50 million.
    3. Replace section Sec. __.400(a), third, forth, and fifth 
(parenthetical) sentences with the following:


Sec. __.400  Responsibilities.

    (a) * * * The determination of the predominant amount of direct 
funding shall be based upon direct Federal awards expended in the 
recipient's fiscal years ending in 2004, 2009, 2014, and every fifth 
year thereafter. For example, audit cognizance for periods ending in 
2006 through 2010 will be determined based on Federal awards expended 
in 2004. (However, for 2001 through 2005, cognizant agency for audit is 
determined based on the predominant amount of direct Federal awards 
expended in the recipient's fiscal year ending in 2000).
* * * * *
    4. In section Sec. __.105, definition of oversight agency for 
audit, add the following at the end of the definition: ``A Federal 
agency with oversight for an auditee may reassign oversight to another 
Federal agency which provides substantial funding and agrees to be the 
oversight agency for audit. Within 30 days after any reassignment, both 
the old and the new oversight agency for audit shall notify the 
auditee, and, if known, the auditor of the reassignment.''

[FR Doc. 02-20258 Filed 8-9-02; 8:45 am]
BILLING CODE 3110-01-P