[Federal Register Volume 88, Number 97 (Friday, May 19, 2023)]
[Rules and Regulations]
[Pages 32140-32141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10574]


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LEGAL SERVICES CORPORATION

45 CFR Chapter XVI


Issuance of Updated Audit Guide for Recipients and Auditors and 
Appendices for Audits of Legal Services Corporation Recipients

AGENCY: Legal Services Corporation, Office of Inspector General.

ACTION: Notice of issuance of final audit guide and appendices.

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SUMMARY: The Legal Services Corporation (LSC) Office of Inspector 
General (OIG) updated its Audit Guide for Recipients and Auditors, (LSC 
OIG Audit Guide), the Compliance Supplement (Appendix A), and 
Appendices B-E. The Audit Guide must be used for audits for fiscal 
years ending September 30, 2023, and thereafter. The LSC OIG Audit 
Guide was published in December 1996 and is outdated. Aside from one 
Audit Bulletin issued in 1997, it has not been updated since. Appendix 
A, Compliance Supplement for Audits of LSC Recipients was updated in 
April 2016. The LSC OIG Audit Guide and appendices required revisions 
to incorporate changes to LSC regulations, auditing standards, and 
other guidelines that have changed. The changes are to enhance clarity 
in guidance and suggested audit procedures.

DATES: The LSC OIG Audit Guide will be effective on October 1, 2023, 
for audits of LSC grantee fiscal years ending on or after September 30, 
2023.

FOR FURTHER INFORMATION CONTACT: Grace Nyakoe, Audit Director, Legal 
Services Corporation Office of Inspector General, 3333 K Street NW, 
Washington, DC 20007, (202) 295-1662, or lsc.gov">gnyakoe@oig.lsc.gov.

SUPPLEMENTARY INFORMATION: 

I. History of This Action

    Updating the LSC OIG Audit Guide and appendices is essential in 
fulfilling the OIG's responsibility for oversight. The LSC OIG Audit 
Guide and appendices provide a uniform approach for audits of LSC 
recipients and describe recipients' responsibilities with respect to 
such audits. Audits of recipients are to be performed in accordance 
with this LSC OIG Audit Guide and Compliance Supplement (Appendix A), 
among other criteria. The LSC OIG Audit Guide and the Compliance 
Supplement give auditors guidance in planning and performing audits to 
accomplish audit objectives.
    Significant changes include eliminating the requirement to classify 
LSC recipients as High-Risk; adding a requirement to consider all LSC 
funds as major programs regardless of spending threshold; and revising 
suggested audit procedures for changes to 45 CFR 1635--Timekeeping 
Requirement. The appendix designations have changed because we 
eliminated the appendices addressing a Sample Audit Agreement and Guide 
for Procurement of Audit Services. Information on these topics is 
readily available from other sources.

II. General Discussion of Comments

    The LSC OIG received three comments during the public comment 
period. All comments were on the Compliance Supplement. The commenters 
were McBride, Lock & Associates, LLC, the LSC OIG Quality Control 
Review contractor; Eide Bailly, an LSC recipient Independent Public 
Accountant; and the National Legal Aid & Defender Association (NLADA), 
a non-LSC funded non-profit, in cooperation with experienced Chief 
Financial Officers of legal aid organizations and the NLADA Regulations 
Committee. One NLADA comment strongly supported the proposed change to 
the Overview section stating that LSC recipients do not have to be 
classified as high risk. All comments generally support the LSC OIG 
changes.
    We also received comments for changes to accounting guidance. OIG 
does not issue accounting guidance and forwarded these comments to LSC. 
NLADA strongly supported the LSC OIG's decision to no longer require 
that LSC recipients be classified as High Risk. The NLADA also 
commented that it generally does not favor blanket requirements but 
does not oppose the LSC OIG requirement that all LSC funds be 
classified as major programs. LSC recipients must have an annual audit 
and classifying the funds as a major program does not add a burden to 
LSC recipients. One comment was to correct a typographical error which 
was corrected. The remaining comments will be discussed in Section III, 
Detailed Discussion of Comments.

[[Page 32141]]

III. Detailed Discussion of Comments--Compliance Supplement Part D

Fund Balances

    Comment--The commenter, McBride Lock & Associates, stated that Part 
1628 refers to an analysis of fund balance to determine whether a 
waiver is required to carryover LSC funds. The commenter further noted 
that this has been confusing for IPAs since LSC issued Program Letter 
20-4, Revenue Recognition Guidance. The commentor stated that the 
regulatory reference uses the term fund balance, and this section 
should include a definition of fund balance for purposes of calculating 
the carryover amount.
    Response--The LSC OIG agreed with this suggestion and updated the 
second paragraph on page 58. This section now includes the LSC 
Financial Guide's, section 3.3 definition of fund balance.

Fund Balances, Compliance Requirements Section, Third Paragraph

    Comment--The commentor, Eide Bailly, suggested that the following 
compliance requirement be revised to include relevant regulatory 
language. ``Recipients may request a waiver to retain a fund balance in 
excess of 10% of LSC support pursuant to 45 CFR 1628.3. Absent a 
waiver, recipients must repay a fund balance in excess of 10% of LSC 
support. If a waiver of the 10% ceiling is granted, the recipient must 
repay any fund balance in excess of the amount permitted to be 
retained. (45 CFR 1628.3)
    The commentor suggested the text read, ``Recipients may request a 
waiver to retain a fund balance in excess of 10% of LSC support 
pursuant to 45 CFR 1638.3. Absent a waiver, recipients must repay a 
fund balance in excess of 10% of LSC support. If a waiver of the 10% 
ceiling is granted, the recipient may retain up to the amount permitted 
in the waiver but must repay any fund balance in excess of the amount 
permitted to be retained. (45 CFR 1628.3).
    Response--The LSC OIG agreed with the suggested change and updated 
Appendix A, Compliance Supplement.

Timekeeping, 2. Audit Procedures--Internal Control b

    Comment--The commentor, McBride Lock & Associates suggested 
changing the language in the Part 1635--Timekeeping Requirement section 
from, ``. . . how the recipient has revised its timekeeping policies to 
comply . . .'' to ``. . . how the recipient has established its 
timekeeping policies to comply . . .''
    Response--The LSC OIG agreed with the comment and made this change.

Timekeeping, Section 2b, Audit Procedures--Internal Control and Section 
3, Audit Procedures--Substantive

    Comment--NLADA suggested two clarifications in the Part 1635--
Timekeeping Requirement section. The comment was to add a reference to 
the LSC Financial Guide in Section 2b noting that the LSC Financial 
Guide lists timekeeping requirements. NLADA also suggested that LSC OIG 
clarify the ``minimum sample size of 20 timesheets'' in 3. Audit 
Procedures--Substantive. The suggested clarification is to be clear 
that one timesheet means a timesheet of one pay period for one 
employee.
    Response--The LSC OIG agreed with these suggestions and added a 
reference to the LSC Financial Guide and added language to clarify the 
sample size.
    For the reasons stated above, the Legal Services Corporation Office 
of Inspector General revises the LSC OIG Audit Guide for Recipients and 
Auditors. The revised LSC OIG Audit Guide for Recipients and Auditors 
and its appendices are available on the LSC OIG website at: Audit 
Guidance (lsc.gov).
    The Audit Guide and appendices contain references to other 
documents, such as LSC program letters and forms. We plan to update 
these references as they are modified.

(Authority: 42 U.S.C. 2996g(e).)

    Dated: May 12, 2023.
Stefanie Davis,
Senior Associate General Counsel for Regulations.
[FR Doc. 2023-10574 Filed 5-18-23; 8:45 am]
BILLING CODE 7050-01-P