[Federal Register Volume 68, Number 124 (Friday, June 27, 2003)]
[Notices]
[Pages 38401-38402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16355]


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OFFICE OF MANAGEMENT AND BUDGET


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

AGENCY: Office of Management and Budget.

ACTION: Revision of OMB Circular No. A-133.

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SUMMARY: The Office of Management and Budget (OMB) is issuing final 
revisions to Circular A-133, ``Audits of States, Local Governments, and 
Non-Profit Organizations.'' The purpose of these revisions is to (1) 
increase the threshold for audit from $300,000 to $500,000, (2) 
increase the threshold for cognizant agency for audit from $25 million 
to $50 million, and (3) make related technical changes to facilitate 
the determination of cognizant agency for audit and provide for Federal 
agency reassignment of oversight agency for audit.

DATES: The final revisions are effective for fiscal years ending after 
December 31, 2003, and early implementation will not be permitted with 
the exception of the amendment to the definition of oversight agency 
for audit in Circular A-133, section --.105. The amendment to the 
definition of oversight agency for audit is effective July 28, 2003.

FOR FURTHER INFORMATION CONTACT: Recipients should contact their 
cognizant agency for audit or oversight agency for audit or Federal 
awarding agency, as may be appropriate in the circumstances. 
Subrecipients should contact their pass-through entity. Federal 
agencies should contact Terrill W. Ramsey, Office of Federal Financial 
Management, Office of Management and Budget, 202-395-3993.

SUPPLEMENTARY INFORMATION: On August 12, 2002, OMB proposed revisions 
(67 FR 52545) to OMB Circular A-133, ``Audits of States, Local 
Governments, and Non-Profit Organizations.'' The Office of Management 
and Budget (OMB) is issuing final revisions to Circular A-133, ``Audits 
of States, Local Governments, and Non-Profit Organizations.'' The 
revisions will (1) increase the threshold for audit from $300,000 to 
$500,000, (2) increase the threshold for cognizant agency for audit 
from $25 million to $50 million, and (3) make related technical changes 
to facilitate the determination of cognizant agency for audit and 
provide for Federal agency reassignment of oversight agency for audit.
    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 on 
a biennial basis and increase it as appropriate. The audit threshold 
established in 1997 required 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. The revision increases the audit threshold from 
$300,000 to $500,000. This increase relieves 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 conducting Circular A-133 audits.
    The revision increases the threshold for cognizant agency for audit 
from $25 million to $50 million. This change will reduce the number of 
non-Federal entities with a cognizant agency for audit assignment from 
approximately

[[Page 38402]]

1,000 to 500. This revision will allow Federal agencies to provide more 
focused attention 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. The revision also changes the base years for determining 
cognizant agency for audit assignments. (Currently, the cognizant 
agency for audit determination is based on the amount of Federal 
funding in the year immediately preceding each five-year audit 
cognizant period. This revision changes the base year to the second 
year preceding the five-year audit cognizant period to allow sufficient 
time to make cognizant agency for audit determinations before the start 
of the audit cognizance period.) Finally, the revision changes the 
definition of oversight agency for audit to permit Federal agencies to 
make reassignments.

Response to Comments

    OMB received 43 comment letters: Eight from Federal agencies, seven 
from State governments, four from universities, five from non-profit 
organizations, 14 from certified public accountants, and five from 
individuals. Nearly all comments focused on raising the audit 
threshold: 28 were in favor and 10 opposed. Of the 10 that were opposed 
to raising the audit threshold, two were from Federal agencies; two 
were from one State; one from a university; and five from individuals. 
Opposition centered on concerns over specific programs and the 
perceived lack of accountability over Federal funds that would fall 
below the new threshold. On the other hand, several commenters 
suggested raising the threshold to $1 million to further alleviate the 
burden on non-Federal entities expending smaller amounts of Federal 
funds. OMB believes that, because the revisions only exempt an 
additional one-half of one percent of Federal dollars expended from 
audit while providing administrative relief to approximately 6,000 
entities, the risk to Federal funds does not outweigh the benefits to 
grant recipients. OMB, however, appreciates the comments about reduced 
accountability and concerns expressed by several commenters that 
raising the audit threshold could provide more opportunities for fraud.
    It is important to note that Circular A-133 audit is only one of 
many monitoring tools available to oversee the administration of and 
strengthen accountability over Federal grants. Grantee 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 grantee 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 
grantee financial and performance reports, performing site visits to 
review financial and programmatic records and observe operations, and 
arranging for agreed-upon procedures engagements for certain aspects of 
grantee activities, such as described in Sec.  --.230(b)(2) of Circular 
A-133. Factors such as the size of awards, the complexity of the 
compliance requirements, and risk of grantee non-compliance as assessed 
by the grantor may influence the nature and extent of monitoring 
procedures. Federal laws or regulations may impose monitoring 
requirements specific to a Federal program. The 2003 OMB Circular A-133 
Compliance Supplement clarifies the guidance to auditors related to 
subrecipient monitoring.
    It should also be noted that the Federal Government has the 
authority to audit and/or investigate any entity suspected of using 
Federal funds improperly, regardless of the amount of funds involved. 
Allegations of fraud should be directed to the Federal awarding 
agency's Office of Inspector General fraud hotline phone numbers which 
are available on the Internet at http://www.ignet.gov.
    Nine comments addressed the increase from $25 million to $50 
million of the threshold for cognizant agency for audit. Seven 
commenters (two Federal and five non-Federal) supported the increase 
and two Federal agencies opposed. One concern was that the reduction in 
the number of cognizant agency for audit assignments would reduce 
Federal agency monitoring of audit quality. OMB is actively working 
with Federal agencies to strengthen quality control reviews of audits 
by selecting a statistical sample of single audits to measure audit 
quality across Federal programs. This work is expected to improve our 
ability to measure and improve audit quality.
    Four comments concerned the technical changes. One Federal agency 
(which opposed all of the proposed revisions to Circular A-133) 
expressed concern about accountability over Federal funds. As noted 
above, OMB believes that the revisions to Circular A-133 provide an 
appropriate balance between administrative relief and the risk to 
Federal funds.

Availability of Revised Circular

    OMB has prepared an updated version of Circular A-133, as amended 
herein. It is available electronically on the OMB Home Page at http://www.omb.gov and then select ``Grants Management'' followed by 
``Circulars.''

    Dated: June 23, 2003.
Augustine T. Smythe,
Acting Director.

    1. OMB hereby amends Circular A-133 by replacing $300,000 with 
$500,000 in the following sections: Sec.  ----.200(a); Sec.  --
--.200(b); Sec.  ----.200(d); Sec.  ----.230(b)(2); and Sec.  --
--.400(d)(4).
    2. OMB hereby amends Circular A-133 by replacing $25 million with 
$50 million in section Sec.  ----.400(a), first sentence.
    3. OMB hereby amends Circular A-133 by replacing section Sec.  --
--.400(a), third, fourth, 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, the 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. OMB hereby amends Circular A-133, section Sec.  ----.105, by 
adding at the end of the definition of oversight agency for audit: ``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. 03-16355 Filed 6-26-03; 8:45 am]
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