Single Audit: Update on the Implementation of the Single Audit Act
Amendments of 1996 (Letter Report, 09/29/2000, GAO/AIMD-00-293).

GAO provided information on the implementation of seven key amendments
to the Single Audit Act of 1984.

GAO noted that: (1) the intended objectives of the first two amendments
have, for the most part, been accomplished; (2) the legislation and
subsequent implementation guidance issued by the Office of Management
and Budget (OMB) resulted in uniform audit requirements for state and
local governments and nonprofit organizations and raised, to a more
cost-beneficial level, the dollar threshold for determining which
recipients are subject to audit; (3) federal agencies, state and local
governments, and nonprofit organizations that are recipients of federal
awards and their respective auditors are applying the audit guidance in
meeting their single audit responsibilities; (4) actions by single audit
stakeholders have laid the foundation for effective implementation of
the next four amendments; (5) OMB has issued detailed criteria on how to
apply the risk-based audit approach, and auditors are using the
risk-based approach on their engagements; (6) single audit reports now
include a summary of the auditor's results regarding the recipient's
financial statements, internal controls, and compliance with laws and
regulations; (7) users of single audit reports can now obtain and
analyze information on more than 27,000 annual reports more quickly than
ever before using the Internet to access a single audit automated
database established by the Bureau of the Census; (8) recipients have
recently begun submitting their audit reports under the 9-month
reporting deadline instead of the previous 13 month deadline; (9) there
is not yet enough experience to evaluate the prospects for achieving the
objective of the seventh amendment; (10) OMB received two pilot project
proposals and approved one, a proposal by the Washington State Auditor
to combine 200 separate audits of state educational organizations into
one audit; and (11) more experience with pilot projects is needed before
their use as an alternative method for streamlining and improving single
audits can be evaluated.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-293
     TITLE:  Single Audit: Update on the Implementation of the Single
	     Audit Act Amendments of 1996
      DATE:  09/29/2000
   SUBJECT:  Auditing standards
	     Auditing procedures
	     Financial management systems
	     Federal aid to states
	     Internal controls
	     Reporting requirements
IDENTIFIER:  Census Bureau Federal Audit Clearinghouse

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GAO/AIMD-00-293

Appendix I: Data Collection Form for Reporting on
Audits of States, Local Governments and
Non-profit Organizations

22

Appendix II: Comments From the Office of Management
and Budget

25

Appendix III: GAO Contact and Staff Acknowledgments

26

Table 1: TANF Compliance Findings 17

AICPA American Institute of Certified Public Accountants

CFDA Catalog of Federal Domestic Assistance

IG Inspector General

OMB Office of Management and Budget

TANF Temporary Assistance to Needy Families

Accounting and Information
Management Division

B-286084

September 29, 2000

The Honorable Steve Horn, Chairman
The Honorable Jim Turner, Ranking Minority Member
Subcommittee on Government Management,
Information, and Technology
Committee on Government Reform
House of Representatives

In May 1999, we testified before your subcommittee on efforts to implement
the Single Audit Act Amendments of 1996.1 At that time, we said we would
continue to monitor implementation of the amendments. This letter provides
you with an update on the implementation of seven key amendments that cover
a range of fundamental issues affecting the single audit process and the use
of single audit results. These seven amendments

1. extend the law to cover all recipients of federal financial assistance,

2. ensure a more cost-beneficial threshold for requiring single audits,

3. focus audit work on programs that present the greatest financial risk to
the federal government,

4. provide for summary reporting of audit results,

5. promote better analyses of audit results through the establishment of a
federal clearinghouse and an automated database,

6. provide for timely reporting of audit results, and

7. authorize pilot projects to further streamline the audit process and make
it more useful.

The intended objectives of the first two amendments have, for the most part,
been accomplished. The legislation and subsequent implementation guidance
issued by the Office of Management and Budget (OMB) resulted in uniform
audit requirements for state and local governments and nonprofit
organizations and raised, to a more cost-beneficial level, the dollar
threshold for determining which recipients are subject to audit. Federal
agencies, state and local governments, and nonprofit organizations that are
recipients of federal awards and their respective auditors are applying the
audit guidance in meeting their single audit responsibilities.

Actions by single audit stakeholders have laid the foundation for effective
implementation of the next four amendments. OMB has issued detailed criteria
on how to apply the risk-based audit approach, and auditors are using the
risk-based approach on their engagements. Single audit reports now include a
summary of the auditor's results regarding the recipient's financial
statements, internal controls, and compliance with laws and regulations.
Users of single audit reports can now obtain and analyze information on more
than 27,000 annual reports more quickly than ever before by using the
Internet to access a single audit automated database established by the
Bureau of the Census. Finally, recipients have recently begun submitting
their audit reports under the 9-month reporting deadline instead of the
previous 13-month deadline.

There is not yet enough experience to evaluate the prospects for achieving
the objective of the seventh amendment. OMB received two pilot project
proposals and approved one, a proposal by the Washington State Auditor to
combine 200 separate audits of state educational organizations into one
audit. More experience with pilot projects is needed before their use as an
alternative method for streamlining and improving single audits can be
evaluated.

The Single Audit Act, as amended, established the concept of the single
audit to replace multiple grant audits with one audit of a recipient as a
whole. As such, a single audit is an organizationwide audit that focuses on
the recipient's internal controls and its compliance with laws and
regulations governing federal awards. Federal awards consist of federal
financial assistance including grants, loans, loan guarantees, property,

cooperative agreements, interest subsidies, insurance, food commodities,
direct appropriations, and federal cost reimbursement contracts.2

The objectives of the Single Audit Act, as amended, are to

ï¿½ promote sound financial management, including effective internal controls,
with respect to federal awards administered by nonfederal entities;

ï¿½ establish uniform requirements for audits of federal awards administered
by nonfederal entities;

ï¿½ promote the efficient and effective use of audit resources;

ï¿½ reduce burdens on state and local governments, Indian tribes, and
nonprofit organizations; and

ï¿½ ensure that federal departments and agencies, to the maximum extent
practicable, rely on and use audit work done pursuant to the act.

In 1994, we reported3 that state and local government officials had
indicated that the single audit process had contributed to improving state
and local government financial management practices. They reported that they
had installed new accounting systems, begun having annual comprehensive
financial statement audits, adopted or accelerated the adoption of generally
accepted accounting principles, improved systems for tracking federal funds,
strengthened administrative controls over federal programs, and increased
oversight of recipients to whom they distributed federal funds.

Despite those reported improvements, we identified several issues that
burdened the single audit process, hindered the usefulness of its reports,
and limited its impact. We recommended changes to address these issues.
These actions included increasing the dollar thresholds for determining
which recipients were required to have a single audit, adding program risk
criteria to the process for selecting programs to be audited, and compiling
single audit results so that oversight officials and program managers can
easily access and analyze them.

The Single Audit Act Amendments of 1996 refined the Single Audit Act of
1984. These amendments and the OMB implementing guidance provide the
underpinnings for improving the auditing of the more than $300 billion in
annual federal awards to nonfederal entities. The changes embodied in the
amendments were developed through the collaborative efforts of the many
stakeholders in the single audit process, including OMB, federal inspectors
general, federal and state program managers, state auditors, the public
accounting profession, and ourselves. The changes addressed the points we
raised in the 1994 report and other issues.

The 1996 amendments were effective for audits of recipients whose fiscal
years began after June 30, 1996. An amendment that required the submission
of audit reports no later than 9 months after a recipient's year-end
contained a 2-year transition period before it went into effect. As a
result, this requirement became effective for entities with fiscal years
that began after June 30, 1998.

Because of the importance of the Single Audit Act's objectives, including
promoting sound financial management and the efficient and effective use of
audit resources, we have monitored and will continue to monitor the progress
being made in implementing the Single Audit Act Amendments of 1996. This
report addresses the status of the implementation of the seven amendments
cited earlier.

In developing this status report, we

ï¿½ coordinated the audit plan and the results of this assignment through the
National Intergovernmental Audit Forum,4

ï¿½ met with representatives of OMB, federal agencies, federal offices of
inspector general, state audit offices, and the American Institute of
Certified Public Accountants (AICPA) to gain their perspectives on single
audit implementation issues,

ï¿½ met with representatives of the Federal Audit Clearinghouse to determine
the status of the development of the single audit database and to gain an
understanding of their database applications and internal control
responsibilities,

ï¿½ met with representatives from OMB about their actions to meet their single
audit act responsibilities and other single audit issues,

ï¿½ tested single audit database functions offered on the Federal Audit
Clearinghouse Internet site, identified problems and challenges, and worked
with clearinghouse officials to address them,

ï¿½ analyzed the single audit data collection form, the instrument used to
document audit report data entered into the single audit database, and
provided OMB with suggestions for improving the form,

ï¿½ accessed and analyzed single audit report information on more than 27,000
annual audit reports contained in the Federal Audit Clearinghouse single
audit database,

ï¿½ developed databases of selected information from the Catalog of Federal
Domestic Assistance5 and federal programs that we have reported as prone to
improper payments6 and then linked them to single audit data to determine
audit coverage of selected programs,

ï¿½ created a database using Internet sources that identify nonprofit
organizations and matched it with single audit report data to gain a
perspective on the self-reporting aspect of the Single Audit Act and to
demonstrate the potential of linking related sources of information,

ï¿½ determined that 251 recipients, with federal award expenditures of
$100 million or more, collectively accounted for about 78 percent of federal
award expenditures reported in 1998 single audits,

ï¿½ discussed the use of the risk-based approach with the auditors from a
sample of 15 non-low-risk recipients that expended $100 million or more
during calendar year 1998, and

ï¿½ reviewed the results of the Department of Commerce Inspector General's
(IG) review of the accuracy of the Federal Audit Clearinghouse single audit
database.

We did not independently test the reliability of the single audit database.
At OMB's request, the Department of Commerce IG performed a review of the
database to assist OMB, the Census Bureau, and other users in assessing the
accuracy of the fiscal year 1998 audit report information in the

database.7 We reviewed the IG's sampling methodology, monitored the audit
scope and the progress of the review, and discussed the preliminary results
with OMB and IG officials.

We conducted our work from June 1999 through July 2000 in accordance with
generally accepted government auditing standards. We discussed a draft of
this report with representatives of stakeholder groups including federal
inspectors general, state auditors, and the public accounting profession. We
also provided a draft of this report for comment to the Director of OMB. We
have incorporated their comments and views where appropriate.

Following is a synopsis of the implementation status of each of the seven
amendments we are monitoring.

The Single Audit Act of 1984 and its implementing guidance, OMB Circular
A-128, covered audits of federal financial assistance to state and local
governments. It did not cover colleges, universities, hospitals, or other
nonprofit recipients. Instead, audit requirements for these entities were
established administratively in OMB Circular A-133. This circular was, in
some ways, inconsistent with OMB Circular A-128. For example, the circulars
contained different criteria for determining which programs were to receive
detailed audit coverage. They also established different time frames by
which the recipients were required to transmit their audit reports to a
federal clearinghouse and make them available for public inspection.

The 1996 amendments expanded the scope of the act to include colleges,
universities, hospitals, and other nonprofit organizations, and required OMB
to prescribe implementation guidance. Accordingly, OMB combined the two
audit circulars and issued a revised Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, in June 1997. This circular
establishes policies to guide implementation of the Single Audit Act
Amendments of 1996 and provides an administrative foundation for uniform
audit requirements for nonfederal entities that administer federal awards.

A significant part of Circular A-133 is the Compliance Supplement. This
document provides auditors with guidance on compliance requirements relevant
to specific federal programs, suggests audit procedures for these programs,
and includes general audit procedures for programs not included in the
supplement. In our 1994 report, we noted that the then existing supplement
did not reflect all current legal and program requirements because it had
not been updated since 1990.

OMB now updates the Compliance Supplement annually. The supplement is
available in hard copy and has been available through OMB's Internet home
page (http://www.whitehouse.gov/OMB) for several years. Each year, OMB works
with federal agency representatives to identify programs that should be
added to the supplement and changes that are needed in the program
information for those programs already in the supplement. The March 2000
update included specific guidance and audit procedures for about 140 of the
approximately 1,400 federal programs listed in the Catalog of Federal
Domestic Assistance (CFDA) and general guidance to assist auditors in
determining compliance requirements, audit objectives, and audit procedures
for programs not included in the supplement. Auditors generally commended
OMB for its update activities and commented that the annual updates on
compliance requirements, audit procedures, and legislative citations are
very helpful to them when performing their audit work.

The 1984 Single Audit Act established a $100,000 single audit threshold8 for
determining those entities that were required to have a single audit. In
setting this threshold, the Congress intended that entities receiving the
greatest amount of federal financial assistance each year be audited and
that entities receiving comparatively small amounts of federal assistance be
exempted. The fixed threshold, however, did not take into account future
increases in amounts of federal financial assistance. As a result, over
time, audit resources were being expended on recipients that received
comparatively small amounts of federal financial assistance.

The 1996 amendments raised the dollar threshold from $100,000 to $300,000.
Further, the threshold is now based on expenditures rather than receipts,
and any recipient that expends less than $300,000 is exempt from the audit
requirement. As a result of the threshold change, audit attention is again
focused where the Congress originally intended that it be focused, that is,
on recipients expending the largest amounts of federal financial assistance.
Although information is not collected on the number of recipients affected
by the threshold change, representatives of federal and state audit
organizations and documents we have reviewed indicate that the number of
entities required to have single audits has decreased, in some cases
significantly. For example, Pennsylvania has reported that this change
eliminated the requirement to audit approximately 1,200 relatively small
entities and still provided audit coverage for 94 percent of the federal
funds spent at the local level. Representatives from Maine, Rhode Island,
and Massachusetts stated that the threshold change had a large impact on the
number of audits conducted, although they did not have specific information
on the number of audits eliminated.

The amendments require the Director of OMB to biennially review the
appropriateness of the dollar threshold. The Director may adjust the amount
consistent with the Single Audit Act's purpose but cannot lower it below
$300,000. Exercising this authority in the future will give the OMB Director
the flexibility to administratively maintain the single audit threshold at a
reasonable level without the need for periodic legislative amendments.

OMB performed a preliminary evaluation of the single audit threshold in late
1999 and updated it during the summer of 2000. For each of these reviews,
OMB used data obtained from the Federal Audit Clearinghouse database as its
principal source of information. The database contained single audit report
data for entities with fiscal years ending on or after
June 30, 1997.

At the time of OMB's preliminary evaluation, the database did not contain
single audit report information for any full calendar year. OMB officials
have told us that they considered it critical for analysis that more
information be available before OMB attempted to reach conclusions on the
appropriateness of or need for a threshold change. Therefore, OMB used the
1999 review as a dry run to determine the types of evaluations and analyses
possible, the additional information needed, and other areas that needed to
be considered before it could make a threshold change decision.

For its summer of 2000 evaluation, OMB analyzed database information for
1997 and 1998 single audit reports. In considering the threshold issue, OMB
attempted to

ï¿½ understand what threshold provides an appropriate balance between audit
burden and audit coverage,

ï¿½ provide a reasonable level of assurance that the entities that would no
longer be subject to these audit requirements are not at higher risk for
audit problems, and

ï¿½ provide reasonable assurance that certain entity types, and by extension
certain federal agencies, are not disproportionately affected by raising the
threshold.

OMB is currently reviewing the results of its study and expects to reach its
conclusion on the appropriateness of the current threshold and the need for
a threshold change some time this fall.

The 1984 act's criteria for selecting programs for testing during the audit
were based on the amount of federal financial assistance received. The 1996
amendments require auditors to use combined expenditure and risk-based
criteria to determine which programs to include in the scope of a single
audit. This gives auditors greater freedom in targeting risky programs by,
for example, allowing them to eliminate low-risk large dollar programs from
testing and include high-risk small dollar programs in their place.

OMB Circular A-133 prescribes a four-step process that auditors are to use
when identifying programs that will be audited. When considering program
risk during this process, auditors shall consider such items as the
recipient's current and prior audit experience with federal programs; the
results of recent oversight visits by federal, state, or local agencies; and
the inherent risk of the program. The four steps of the risk-based process
call for the auditor to

ï¿½ identify the larger federal programs, using expenditure criteria specified
in Circular A-133 as applied on an entity-by-entity basis;

ï¿½ identify the larger federal programs that are low risk;

ï¿½ identify smaller federal programs (i.e., those whose expenditures fall
below the Circular A-133 criteria noted in step 1 above) that are high risk
by considering the three areas of potential risk noted above, documenting
risk assessments for programs that meet the expenditure criteria specified
in Circular A-133, and applying auditor judgment; and

ï¿½ audit all large federal programs, except that the auditor may exclude
those judged low risk, and audit high-risk smaller programs.

When determining the number of smaller programs to audit, the auditor has
two options--to audit at least 50 percent of the smaller programs identified
as high risk, with certain exceptions, or to audit one high-risk smaller
program for each larger program identified as low risk and excluded from the
audit.

Auditors responsible for the 1998 single audits at 15 state and local
governments and nonprofit organizations that we randomly selected to obtain
information on the risk-based approach indicated that they used the
risk-based approach when determining the programs that they examined.
Specifically, the auditors stated that in

ï¿½ all 15 audits, they used the risk-based approach when performing the
audit;

ï¿½ 11 instances, the risk-based approach identified at least one small-dollar
program that they selected for testing;

ï¿½ 4 instances, the risk-based analysis resulted in the auditors concluding
that they should examine all large-dollar programs; and

ï¿½ 1 instance, a large-dollar program was eliminated based on the risk-based
analysis, but no smaller programs were examined because the risk-based
analysis of all small programs resulted in the conclusion that all of the
small programs were low risk.

We also found that, in 4 of the 11 instances where at least one small-dollar
program was audited, the same small program (the Maternal and Child Health
Services Block Grant Program) was audited in 4 states. The audit reports for
all 4 states discussed internal control problems affecting this program.

In general, the auditors examined more small-dollar programs when the
recipient expended funds from many federal programs than when they expended
funds from a few programs. For example, one state single audit report
identified expenditures for more than 400 federal programs. Based on its
risk analyses, the auditors identified 7 large-dollar programs that they
deemed were low risk and did not audit. They replaced them with 7
small-dollar programs that the risk-based analysis identified as high risk.

Conversely, for example, the results of the risk-based approach for a
recipient with expenditures from only four federal programs led the auditors
to conclude that all large-dollar programs were high risk. They audited each
of these programs.

In reviewing other information on single audit reports, we found that
51 percent of the entities filing single audit reports expended funds from
five or fewer federal programs. At several of these entities, none of the
programs qualified as a large-dollar program, based on the Circular A-133
criteria. For example, one nonprofit recipient expended funds from two
federal programs, neither of which qualified as a large-dollar program. The
auditors selected the largest of the programs, which accounted for about
81 percent of the expenditures, for audit, thereby meeting the general
requirement that at least 50 percent of the federal expenditures be audited.

The audit officials we spoke to also identified benefits resulting from the
implementation of the risk-based approach. Six of the 15 auditors we spoke
to noted that the approach allows for more auditor flexibility and affords
them the opportunity to use judgment in determining the programs that they
will audit. In addition, two other auditors noted that the requirement to
perform risk assessments has resulted in more intensive audit planning than
was performed prior to the 1996 amendments.

In 1994, we reported that neither the Single Audit Act nor OMB's
implementing guidance prescribed the format for conveying the results of the
auditors' tests and evaluations. Single audit reports contained a series of
as many as eight or more separate reports, including five specifically
focused on federal financial assistance, and significant information was
scattered throughout the separate reports. The 1996 amendments require that
the auditor include, in the single audit report, a summary of the audit's
results on the recipient's financial statements, internal controls, and
compliance with laws and regulations. OMB Circular A-133 requires that a
summary of the audit results be included in a schedule of findings and
questioned costs.

Summary reports typically contain the following types of information:

ï¿½ the type of auditors report on the entity's financial statements, internal
controls, and compliance with laws and regulations,

ï¿½ whether the auditor identified any material internal control weaknesses or
had other audit findings,

ï¿½ the dollar threshold used to distinguish between large- and small-dollar
programs,

ï¿½ whether the entity audited was low risk, and

ï¿½ the federal programs audited.

As part of its review of the accuracy of the Federal Audit Clearinghouse
single audit database, the Department of Commerce IG compared information
contained in several components of the single audit reporting package and
the data collection form with the information contained in the summary
report. All single audit reports examined by the Commerce IG contained a
summary report. However, the auditors identified several errors and
discrepancies when matching single audit report information with the
information contained in the summary report. For example, for the 150 single
audit reports reviewed, the IG auditors found 8 instances in which the
reportable condition information entered on the clearinghouse data
collection form did not agree with the information included on the summary
report. By projecting these errors to the universe of 18,992 reports from
which the sample was selected, the Commerce auditors calculated that these
errors could occur in up to 1,847 reports. They also found 4 instances in
which a mismatch existed between the audit findings listed on the data
collection form and the audit findings included on the summary report. These
errors were the result of auditor mistakes in completing one of the
documents examined. By projecting these mistakes, the Commerce auditors
reported that these errors could occur in up to 1,333 reports.

Our 1994 report also highlighted that data on the results of single audits
were not readily accessible and discussed the benefits of compiling those
results in an automated database. The Single Audit Act Amendments of 1996
has resulted in the establishment of an automated database of single audit
information at the Federal Audit Clearinghouse. This database--containing
information on over 27,000 annual reports and various query
options--provides potential users (including program managers, auditors, and
other interested parties) with significant amounts of readily available
information on nonfederal entity financial management and internal control
systems and compliance with federal laws and regulations. Database analysis
can provide, among other things, leads for follow-on audits and program
oversight.

OMB Circular A-133 now requires all entities that submit single audit
reports to submit a data collection form that includes information about the
entity, its federal programs, and the results of the audit. Recipients are
to submit these forms to the Federal Audit Clearinghouse along with their
single audit reporting packages.

The Federal Audit Clearinghouse uses this data collection form as the source
of the information for its automated, Internet-accessible9 database of key
information contained in single audit reports. Appendix I contains a copy of
the data collection form. OMB is currently working with representatives of
federal agencies and the Federal Audit Clearinghouse on form revisions. OMB
is revising the form as part of its 3-year review required under the
Paperwork Reduction Act and to clarify instructions for completing the form,
allow for more detailed analyses of federal awards contained in the
database, and facilitate more accurate report distribution. For example, one
change is the addition of a question that asks whether awards are received
directly from a federal awarding agency or received by a subrecipient
indirectly from a pass-through entity. Federal agencies and pass-through
entities need this information for resolution of audit findings (i.e.,
federal agencies resolve findings applicable to direct awards, and
pass-through entities resolve findings applicable to indirect awards). The
Federal Audit Clearinghouse needs this information to ensure proper report
distribution.

The July 11, 2000, Federal Register included OMB's notice and request for
comments on the draft revised form. OMB requested comments on or before
September 11, 2000, and plans to require entities to use the new data
collection form for audit periods ending on or after January 1, 2001.

Potential users can access the database and perform analyses of its
information in two ways. First, they can select the data query function that
is a part of the Federal Audit Clearinghouse Internet site's on-line
options. Under this alternative, users select data fields from the options
on the query form, which mirrors the data collection form, and the built-in
query function will search the database and provide the search results. For
example, using this method, a user can identify the number of specific
single audit reports that identified internal control weaknesses in any
program with a CFDA number. The 1999 catalog identifies and presents budget
and other information on approximately 1,400 federal programs and assigns a
specific number to each.

To demonstrate further, suppose that a user is looking for information in
1998 single audits concerning the Temporary Assistance to Needy Families
(TANF) program. A search of the database, using the CFDA number as the
program identifier, reveals that TANF was cited in 1,518 single audit
reports. Analysis of these reports shows that auditors identified internal
control weaknesses--either reportable conditions, material weaknesses, or
both--146 times. These control weaknesses existed in state and local
governments and nonprofit organizations. Using this query alternative, a
user can quickly identify entities that expended TANF funds, entities that
experienced internal control problems in their TANF operations, and specific
pages within the entity single audit reports that discuss those problems.

This ability did not exist prior to the 1996 amendments. At that earlier
time, a user would have to review paper copies of all single audit reports
in an attempt to identify problems in programs of interest to them. Now a
user has the opportunity to electronically create an automated inventory of
reports that identifies problems. An inventory of reports identifying needed
corrective action would be a useful tool for program managers that are
responsible for managing resources required for resolving program compliance
problems and for assuring that all expected audit reports are received.

Under the second query option, users can download the database and perform
computations, develop a variety of analytical queries, and design graphics.
For example, using the download alternative, a user can compute the
percentage of reported TANF expenditures that were audited for compliance
with TANF requirements. For the 1998 audit reports, about
90 percent of reported TANF expenditures were tested for compliance with
laws and regulations. The problems identified most frequently in these
reports (see table 1) included noncompliance with allowable costs/cost
principles and noncompliance with program eligibility criteria. This type of
summary statistics could be used to measure program improvement over time.

 Compliance area                                        Number of findings
 A: Activities allowed or unallowed                     13
 B: Allowable costs/cost principles                     52
 C: Cash management                                     21
 D: Davis Bacon Act                                     2
 E: Eligibility                                         41
 F: Equipment and real property management              17
 G: Matching, level of effort, earmarking               4
 H: Period of availability of funds                     4
 I: Procurement                                         15
 J: Program income                                      1
 K: Real property acquisition and relocation assistance 0
 L: Reporting                                           37
 M: Subrecipient monitoring                             27
 N: Special tests and provisions                        19

Source: Federal Audit Clearinghouse database as of July 19, 2000.

Under the 1984 act, entities had up to 13 months from their fiscal year-end
to submit their single audit reporting packages to the federal government.
Our 1994 report noted that nearly 90 percent of the program managers we
queried told us that a 13-month reporting time frame provided data too late.
Program managers supported changing the time frame to 9 months for state
government single audits and to 6 months for all other entities.

The 1996 amendments reduced the reporting time frame to 9 months. However,
compliance with this requirement was not mandatory for 2 years. As a result,
this requirement became effective for entities with fiscal years that began
after June 30, 1998. Thus, the first entities subject to the new time frame
are those with fiscal years beginning on July 1, 1998. Their reporting
packages were due 9 months after June 30, 1999, meaning by March 31, 2000.
The single audit reporting package contains (1) the financial statements and
schedule of expenditures of federal awards,
(2) the summary schedule of prior audit findings, (3) the auditor's report,
and (4) the corrective action plan. Entities also submit the data collection
form with their reporting packages.

Based on information obtained from Federal Audit Clearinghouse officials and
the single audit database, as of March 31, 2000, the Federal Audit
Clearinghouse had received 14,993 single audit reporting packages from
entities with a June 30, 1999, year-end. Of these, available information
showed that 13,891 reporting packages contained all required information and
1,102 were returned to the entity for resubmission because of items missing
from the reporting package, errors in the data collection form, or both. By
June 30, 2000, the cumulative number of reporting packages the Federal Audit
Clearinghouse reported as being received had increased to 16,800, with 799
of these shown as returned to the entities and not yet resubmitted.

Neither OMB nor the Federal Audit Clearinghouse could precisely determine
the number of single audit reports that were due by March 31, 2000, or any
other date because of current data limitations. The trigger for evoking the
need for a single audit is the nonfederal recipient's expenditure of
$300,000 in federal awards within its own fiscal year. However, according to
clearinghouse and OMB officials, there are no current governmentwide systems
that routinely collect data on nonfederal recipients' expenditures of
federal awards applicable to their respective financial reporting periods.
OMB plans to work with federal agencies to explore ways to identify
recipients that are required to submit a single audit report and the due
dates.

The 1996 amendments allow the Director of OMB to authorize pilot projects to
test alternative ways to achieve the objectives of the Single Audit Act. To
date, OMB has received two requests for pilot project approval. OMB approved
the first proposal, by the Washington State Auditor's Office for an annual
audit of the Washington State Education System, on May 7, 1999, for a
maximum of 4 years. The other proposal, by the Georgia State Auditor's
Office for an audit of local education agencies, was not finalized, in part
because of other priorities at the State audit office. Because of the
limited number of requests for and conduct of pilot projects, it would be
premature at this time to draw a conclusion on the benefits of these
projects.

In Washington, the state's education system is made up of three groups--the
state education agency, educational service districts, and local education
agencies--that work in unison to fulfill both federal and state educational
goals. In the past, each of the approximately 200 organizations in these
three groups was audited separately. With centralized planning and
reporting, development of standardized audit programs, and good internal
communication, the state audit office proposed that the resulting audit
report would be an informative, comparative, and constructive report that
would be more useful to both Washington State and the federal community.

The Washington State Auditor has completed two audits under this pilot
project--the first on September 30, 1999, and the second on June 26, 2000.
An advisory committee, consisting of about 30 stakeholders from throughout
the state, provided input and other guidance to the auditors throughout the
pilot project process. Further, the advisory committee is conducting a
post-audit evaluation, and representatives of federal inspector general
organizations are conducting a quality control review of the pilot audits.
These evaluations, which have not been completed, will focus on issues
including what should be done on the pilot in subsequent years.

In commenting on a draft of this report, OMB agreed with our assessment of
the status of the implementation of the 1996 amendments.

We are sending copies of this report to Senator Fred Thompson, Chairman, and
Senator Joseph I. Lieberman, Ranking Minority Member, Senate Committee on
Governmental Affairs; Representative Dan Burton, Chairman, and
Representative Henry A. Waxman, Ranking Minority Member, House Committee on
Government Reform; and members of other interested committees. We are also
sending copies to the Honorable Jacob J. Lew, Director of the Office of
Management and Budget, and representatives of the Federal Audit
Clearinghouse, the National Intergovernmental Audit Forum, federal agencies,
federal offices of inspector general, state audit offices, and the AICPA,
who where stakeholders on this review. Copies will also be made available to
others upon request.

If you or your staff have any questions about our work, I can be reached at
(202) 512-9489 or by e-mail at [email protected]. Staff contacts and other
key contributors to this letter are listed in appendix III.

David L. Clark
Director, Audit Oversight and Liaison

Data Collection Form for Reporting on Audits of States, Local Governments
and Non-profit Organizations

Comments From the Office of Management and Budget

GAO Contact and Staff Acknowledgments

Thomas Broderick, (202) 512-8705

Staff making key contributions to this report were Mary Ellen Chervenic,
Perry Datwyler, and Gloria Hernandez-Saunders.

(911948)

Table 1: TANF Compliance Findings 17
  

1. Single Audit: Efforts Underway To Implement 1996 Refinements
(GAO/T-AIMD-99-177 ,
May 13, 1999).

2. The 1996 amendments added federal cost reimbursement contracts and
changed the term federal financial assistance to federal awards to reflect
the inclusion of nonprofit organizations, which often receive much of their
funding through cost reimbursement contracts for research and development
activities.

3. Single Audit: Refinements Can Improve Usefulness (GAO/AIMD-94-133 , June
21, 1994).

4. The National Intergovernmental Audit Forum is an association of audit
executives from federal, state, and local governments. Its primary purpose
is to improve coordination and cooperation in intergovernmental auditing.

5. The Catalog of Federal Domestic Assistance contains information on all
financial and nonfinancial assistance programs administered by the
departments and establishments of the federal government.

6. Financial Management: Increased Attention Needed to Prevent Billions in
Improper Payments (GAO/AIMD-00-10 , October 29, 1999).

7. Bureau of the Census: Agreed-Upon Procedures and Results Assessment of
Federal Audit Clearinghouse Database Fiscal Year 1998 Audit Reports (Final
Audit Report No. ATL-12556-0-0001/July 2000). The report can also be found
at http://www.oig.doc.gov/reports/recent.htm.

8. The 1984 act included a $25,000 exemption threshold but gave each entity
that received between $25,000 and $100,000 in federal assistance an option
to have separate audits of each of its federal assistance programs or a
single audit. The 1996 amendments eliminated the multiple thresholds.

9. The web address for the clearinghouse database is
http://harvester.census.gov/sac.
*** End of document. ***