Single Audit: Actions Needed to Ensure That Findings Are Corrected (06/26/2002, GAO-02-705}

-------------------------Indexing Terms-------------------------
REPORTNUM:   GAO-02-705
    TITLE:   Single Audit: Actions Needed to Ensure That Findings Are Corrected
     DATE:   06/26/2002



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United States General Accounting Office: 
GAO: 

Report to the Chairman, Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations, Committee on Government 
Reform, House of Representatives: 

June 2002: 

Single Audit: 

Actions Needed to Ensure That Findings Are Corrected: 

GAO-02-705: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Objectives, Scope, and Methodology: 

Agenciesï¿½ Efforts to Ensure That Single Audit Findings are Corrected: 

Single Audit Results are Not Communicated to Agency Management: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Comments From the Department of Education: 

Appendix II: Comments From the Department of Housing and Urban 
Development: 

Appendix III: Comments From the Department of Transportation: 

Table: 

Table 1: Number of Audit Findings with Documented Management Decisions: 

Abbreviations: 

CIFG: Capital Investment and Formula Grants: 

CMS: Centers for Medicare and Medicaid Services: 

CDBG: Community Development Block Grant: 

CPD: Office of Community Planning and Development: 

FAC: Federal Audit Clearinghouse: 

HPCG: Highway Planning and Construction Grants: 

HUD: Department of Housing and Urban Development: 

OCFO: Office of the Chief Financial Officer: 

OESE: Office of Elementary and Secondary Education: 

OIG: Office of the Inspector General: 

OMB: Office of Management and Budget: 

OSFA: Office of Student Financial Assistance: 

PIH: Office of Public and Indian Housing: 

REAC: Real Estate Assessment Center: 

[End of section] 

United States General Accounting Office: 
Washington, D.C. 20548: 

June 26, 2002: 

The Honorable Stephen Horn: 
Chairman: 
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations: 
Committee on Government Reform: 
House of Representatives: 

Dear Mr. Chairman: 

The Single Audit Act, as amended (Single Audit Act), is intended to
promote sound financial management, including effective internal control
over federal awards administered by state and local governments and
nonprofit organizations. According to Office of Management and Budget
(OMB) figures, these awards amounted to about $325 billion in fiscal 
year 2001. The audits required by the Single Audit Act are a critical 
element in the federal governmentï¿½s ability to ensure that federal 
funds are properly used. Each year, about 30,000 single audits are 
conducted with several thousand identifying weaknesses in award 
recipientsï¿½ financial management and internal control systems. The 
federal government must take timely and effective action to ensure that 
these weaknesses are corrected, not only to help ensure effective 
program operations but also to help minimize improper payments -- 
payments of federal funds that should not have been made or that were 
made for incorrect amounts. 

Given the important role of single audits as an oversight and monitoring
tool and the critical need to address audit findings, you requested
information on how federal agencies use single audits and what agencies
are doing to ensure that recipients of federal awards have corrected
problems identified by these audits. On February 19, 2002, we briefed 
you on the results of our survey on how the 24 agencies subject to the 
Chief Financial Officers Act indicate that they use single audit 
results and subsequently summarized those results in a report.[Footnote 
1] This follow-up report focuses on what program managers for six large 
programs, two each at the departments of Education (Education), Housing 
and Urban Development (HUD), and Transportation (Transportation), do to 
(1) ensure that federal award recipients correct the current year and 
recurring findings identified in single audit reports and (2) summarize 
and communicate single audit results and recipient actions to correct 
audit findings to agency management for its use in evaluating agency 
oversight and monitoring of recipient performance and in identifying 
programwide and recipient-specific problem areas needing management 
attention. 

Results in Brief: 

In examining the efforts of the departments of Education, HUD, and
Transportation to ensure that recipients corrected single audit report
findings, we found that each agency had procedures for obtaining and
distributing the audit reports to appropriate officials for action. 
However, they often did not issue the required written management 
decisions or have documentary evidence of their evaluations of and 
conclusions on recipientsï¿½ actions to correct the audit findings. In 
addition, program managers did not summarize and communicate 
information on single audit results and recipient actions to correct 
audit findings to agency management. 

The three agencies have implemented procedures for obtaining single 
audit reports and distributing audit finding information to appropriate 
agency officials. These procedures varied from having (1) a designated 
unit review and evaluate audit findings and forward them to the 
appropriate organizational units for action to (2) diffused 
responsibility calling for program units to identify and obtain single 
audit reports with findings involving their programs and to take action 
on those findings. 

Program managers did not consistently issue written management 
decisions to notify the recipients of the corrective actions the federal
agency deemed necessary to correct the audit findings contained in the
single audit reports. Our review of the audit files at the three 
agencies revealed that, as of March 2002, the agencies had issued 
management decisions for only 75 (about 30 percent) of the 246 audit 
findings contained in our sample of calendar year 1999 single audit 
reports. 

The agencies noted several reasons for not preparing management
decisions for all findings. These include: 

* the findings were insignificant and did not require further action; 

* follow up with recipients was performed but not documented; 

* the audit report that identified the finding also indicated that the
recipient had corrected the audit finding as of the report issuance 
date; and; 

* review of subsequent single audit reports showed that the recipient
corrected the finding. 

The audit files generally did not contain documentation that agency
officials considered any of these factors or used them as a 
justification for not preparing the required management decisions. 

Regarding agency efforts to ensure that federal award recipients correct
audit findings, we found that, while the audit files contained copies of
recipient documents and other records, they did not contain agency
evaluations of or conclusions on the adequacy of the actions cited in 
those records. Without such information, we could not determine the 
agencyï¿½s position on the adequacy of the actions taken or on the need 
for additional actions. 

Program managers also did not summarize and communicate information
on single audit results and recurring and commonly occurring findings to
agency management. Compiling and reporting single audit results 
centrally could reveal or confirm the existence of internal control and 
other problems. It can help strengthen accountability and oversight by 
providing management with information useful in the analyses of both 
programwide problems and recurring problems at specific recipients. 
Further, it can provide management officials with information relevant 
to agency efforts to reduce improper payments ï¿½ a key element of The 
Presidentï¿½s Management Agenda, Fiscal Year 2002, initiative to improve 
financial performance. Our analysis of the Federal Audit Clearinghouse 
(FAC) single audit database information[Footnote 2] showed common types 
of findings at award recipients for several years and that individual 
recipients continued to have similar and recurring audit findings. For 
example, program eligibility and allowable costs findings were both 
repeat problems over a 3-year period for some recipients and were 
problems for several recipients in our sample. 

To help ensure the effective implementation of the Single Audit Act and
that recipients correct the weaknesses identified in single audit 
reports, we recommend that the Secretary at each of the three agencies 
develop and ensure the implementation of single audit guidance that 
meets all OMB Circular A-133 requirements. We also recommend that the 
Secretary at each of the agencies implement policies and procedures for 
reporting information to agency management on (1) the types and causes 
of findings identified in single audit reports and (2) the status of 
corrective actions. This information could be useful in evaluating 
agency efforts to ensure that recipients correct audit findings and 
identifying programwide and recipient-specific problem areas needing 
management attention. 

In commenting on this report, Education and HUD agreed with the 
findings and recommendations. They provided several editorial and/or 
clarification changes and supplemental information that we considered 
and included in the report, as appropriate. Transportationï¿½s comments 
raised several issues concerning both the scope of our audit work and 
the appropriateness of our conclusions and recommendations. Despite the
comments and the issues they raised, we continue to believe that our
conclusions are sound and that the recommendations for agency actions
are needed to help ensure the overall effectiveness of agenciesï¿½
implementation of the Single Audit Act and of their consideration and 
use of single audit findings. The ï¿½Agency Comments and Our Evaluationï¿½
section of this report provides more detailed information on each 
agencyï¿½s comments on a draft of this report, which are reprinted in 
appendixes I through III. 

Background: 

The Single Audit Act is intended to, among other things: 

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

* promote the efficient and effective use of audit resources; and; 

* ensure that federal departments and agencies, to the maximum extent
practicable, rely upon and use single audit work. 

The Single Audit Act requires state and local governments and nonprofit
organizations that expend $300,000 or more in federal awards in a fiscal
year to have either a single audit or program-specific audit conducted. 

Federal awards include grants, loans, loan guarantees, property,
cooperative agreements, interest subsidies, insurance, food commodities,
and direct appropriations and federal cost reimbursement contracts. 

The Single Audit Act also requires recipients to forward an audit 
reporting package to the FAC for archival purposes and for distribution 
to each federal agency responsible for programs for which the audit 
report identifies a finding. The reporting package includes (1) the 
recipientï¿½s financial statements and schedule of expenditures of 
federal awards, (2) a summary schedule of prior audit findings, 
including the status of all audit findings included in the prior 
auditï¿½s schedule of findings and questioned costs for federal awards, 
(3) the auditorï¿½s opinion on the recipientï¿½s financial statements and 
schedule of expenditures of federal awards, reports on internal control 
and compliance with laws, regulations, and provisions of contracts or 
grant agreements, and (4) a schedule of findings and questioned costs. 

Single audits are a key control for the oversight and monitoring of 
recipient use of federal awards. Federal agency actions to ensure that 
award recipients address audit findings contained in single audit 
reports are a critical element in the federal governmentï¿½s ability to 
efficiently and effectively administer federal awards. These findings 
can include internal control weaknesses; material noncompliance with 
the provisions of laws, regulations, or grant agreements; and fraud 
affecting a federal award. 

The Presidentï¿½s Management Agenda, Fiscal Year 2002, identifies the
need to reduce improper payments as a significant element of the
Administrationï¿½s initiative to improve financial performance throughout 
the
government. Single audits can have an impact on the governmentï¿½s efforts
to address improper payments since many of the programs experiencing
improper payments are audited as part of the over 30,000 single audits
conducted annually. For example, recent estimates by the departments of
Agriculture and HUD identified about $976 million and $2 billion in
improper payments in food stamps and housing subsidy programs,
respectively. These programs are often audited as part of a single 
audit. 

Objectives, Scope, and Methodology: 

Our objectives were to determine what program managers for six large
programs, two each at Education, HUD, and Transportation, do to (1)
ensure that federal award recipients correct the current year and 
recurring findings identified in single audit reports and (2) summarize 
and communicate single audit results and actions taken to correct audit 
findings to agency management for its use in evaluating agency oversight
and monitoring of recipient performance and in identifying programwide
and recipient-specific problem areas needing management attention. We
selected these agencies because they are three of the four federal 
agencies that provide the largest amount of federal awards to state and 
local governments and nonprofit organizations. OMB documents show that, 
in fiscal year 2001, these agencies made grants totaling $84 billion to 
state and local governments. We did not include the Department of 
Health and Human Services, the agency with the largest amount of 
federal awards, in this review because of our current work[Footnote 3] 
to evaluate the Centers for Medicare and Medicaid Servicesï¿½ (CMS) 
efforts to monitor its financial oversight to help ensure the propriety 
of Medicaid expenditures. That work included the review of single audit 
reports for fiscal year 1999 and found that the correction of audit 
findings and monitoring of CMS and its regional offices were limited 
and audit resolution activities were inconsistently performed across 
regions. 

To assess how program managers ensure that federal award recipients
corrected problems discussed in single audit reports, we reviewed the
Single Audit Act, OMB Circular A-133, Audits of States, Local 
Governments, and Non-Profit Organizations, and the Comptroller
Generalï¿½s Standards for Internal Control in the Federal Government to
identify agency responsibilities for correcting single audit findings. 
This review identified the following three areas of responsibility, 
which represent the criteria we used in making our assessment. 

* Obtain single audit reports and distribute them to agency officials
responsible for reviewing the report findings and taking actions on
those findings. 

* Issue written management decisions on audit findings within 6 months
of the receipt of the audit report to notify recipients of actions the
federal agency considers necessary to correct the audit findings. 

* Follow up with award recipients to ensure that corrective actions
occurred. 

The FAC single audit database was established as a result of the Single
Audit Act Amendments of 1996 and contains summary information on the
auditor, the recipient and its federal programs, and the audit results. 
We did not independently test the reliability of the database. However, 
at OMBï¿½s request, the Office of the Inspector General (OIG) at the 
Department of Commerce reviewed 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. We reviewed the OIGï¿½s 
sampling methodology, monitored the audit scope and the progress of the 
review, and discussed the results with OMB and OIG officials. We 
concluded that the database for calendar year 1999 was reliable and 
adequate for our sampling purposes. 

At each agency, we identified two large award programs and queried the
FAC single audit database for calendar year 1999 single audit reports 
[Footnote 4] to determine the 10 grantees receiving the largest amount 
of funding for each program. The programs identified for review were 
Title I[Footnote 5] and Pell Grants[Footnote 6] at Education, the 
Community Development Block Grant[Footnote 7] (CDBG) entitlement and 
Section 8 Tenant-Based[Footnote 8] (Section 8) programs at HUD, and 
Capital Investment and Formula Grants[Footnote 9] (CIFG) and Highway 
Planning and Construction Grants[Footnote 10] (HPCG) at Transportation. 
For each grantee identified above, we queried the FAC single audit 
database to identify audit findings in the programs selected. The query 
identified 246 audit findings. 

We interviewed agency officials and reviewed agency guidance to 
determine their procedures for ensuring that audit findings are 
communicated to appropriate officials and/or offices for action and
assessment of recipientsï¿½ corrective actions. We also provided each 
agency with a list of the audit reports and findings selected for 
review. For each finding, we requested documentation including written 
management decisions and evidence of agency follow up with recipients 
on the corrective actions taken and the appropriateness of those 
actions. We interviewed agency officials and reviewed the management 
decisions and documentation provided on agency follow up on recipient 
corrective actions. 

Reporting single audit results and recipient actions to correct audit 
findings to agency management provides management with valuable 
information for use in assessing program risks and identifying areas 
needing action. To determine whether and how the three selected 
agencies summarized and communicated the single audit results and 
actions to correct audit findings to agency management, we interviewed 
officials at the three agencies to determine the reports generated to 
inform agency officials of the single audit results. 

We conducted our review from October 2001 through March 2002 in
accordance with generally accepted government auditing standards. 

Agenciesï¿½ Efforts to Ensure That Single Audit Findings are Corrected: 

Education, HUD, and Transportation had procedures in place that
established responsibility for obtaining, distributing, and reviewing 
single audit findings and for communicating that information to 
appropriate officials for action. However, although required by OMB 
Circular A-133, agencies often did not issue written management 
decisions or have documentary evidence of their evaluations of and 
conclusions on recipient actions to correct the audit findings. 

Guidance Existed for Obtaining Single Audit Reports and Distributing
Reports to Appropriate Officials: 

If federal agencies are going to take action on single audit findings, 
they must first obtain the single audit reports or other documentation
containing single audit findings relating to their programs and 
distribute this information to appropriate offices for action. The 
three agencies in our review had procedures for obtaining single audit 
reports and for distributing audit finding information to appropriate 
agency offices. 

Receipt and Distribution of Single Audit Findings - Education: 

At Education, different offices receive and distribute single audit 
reports or audit findings. For example, the Office of the Chief 
Financial Officerï¿½s (OCFO) audit resolution coordinator receives copies 
of single audit reports with Title I program findings from the FAC and 
distributes audit finding information to the Office of Elementary and 
Secondary Education (OESE). OESE is responsible for the overall 
administration of the Title I program and resolving the audit findings 
and following up on corrective actions. The Office of Student Financial 
Assistance (OSFA) administers the Pell Grant program. OSFA receives 
copies of the single audit reports with Pell Grant findings directly 
from the FAC and distributes copies of the reports to the appropriate 
Pell Grant program offices for action. 

Receipt and Distribution of Single Audit Findings - HUD: 

Although the FAC provides copies of single audit reports containing HUD
program audit findings to the OCFO, officials responsible for the CDBG
and Section 8 programs stated that their offices did not use those 
reports to identify single audit reports with findings. Rather, they 
obtained copies of single audit reports and/or audit finding 
information relating to their programs from other sources, including 
the award recipients and a HUD database developed by its Real Estate 
Assessment Center (REAC). OCFO officials noted that the office 
considers these procedures more efficient than having OCFO personnel 
review each single audit report, identify audit findings, and 
distribute those findings to the appropriate HUD offices. 

To identify CDBG findings, the Office of Community Planning and
Development (CPD) tasks its 42 field offices with identifying award
recipients whose single audit reports contained CDBG-related audit
findings. An August 2000 CPD memorandum instructed field offices to
query the FAC single audit database to identify single audit reports
containing audit findings related to the CDBG program and to obtain 
copies of these single audit reports directly from the federal award 
recipients. To perform this task, the field offices use award documents 
and other agency reports to identify award recipients for which they 
have oversight responsibility. They then query the FAC single audit 
database to identify those recipients whose single audit reports 
contain findings and obtain copies of those reports directly from the 
recipients. 

For the Office of Public and Indian Housing (PIH), program managers
located in 43 PIH field offices generally obtain audit finding 
information for the Section 8 program from HUDï¿½s REAC database. 
Recipients electronically submit financial and compliance information, 
which is excerpted from single audit reports, directly into the REAC 
system for REAC analysis. According to HUD officials, this database 
contains information including the financial statements, notes to the 
financial statements, the schedule of expenditures of federal awards, 
the type of audit opinion, an identification of audit findings, and 
recipient corrective action plans. Findings that are in noncompliance 
with HUD regulations and agreements are referred to the HUD 
Departmental Enforcement Center for processing and follow up. PIH 
officials stated that the REAC database covers about 75 percent of the 
Section 8 program recipients and that program managers responsible for 
overseeing federal award recipients not covered by REAC could query the 
FAC single audit database to identify other single audit reports with 
findings. Once program managers identify reports with findings, they 
obtain copies of the single audit reports directly from the recipients. 
PIH is in the process of developing single audit guidance that it plans 
to issue during the summer of 2002. 

Receipt and Distribution of Single Audit Findings - Transportation: 

The OIG receives single audit reports from the FAC and decides which
single audit findings should be formally addressed by the Operating
Administrations based on a number of factors. These factors include the
dollar amount of expenditures, the number of federal award findings
identified by the auditor, and the type of finding identified. Based on 
its decisions, the OIG sends ï¿½actionï¿½ memoranda to the program field 
offices informing them of the single audit findings that require action 
and a response to the OIG. The OIG uses ï¿½informationalï¿½ memoranda to 
inform the program field offices of single audit findings for which the 
OIG does not require a formal response. Although the OIG does not 
require a formal response on the ï¿½informationalï¿½ memoranda, agency 
officials stated that they expect the field offices to ensure that 
recipients correct all findings, irrespective of the type of memorandum 
used to communicate the findings. An agency official noted that they 
developed this method of addressing audit report findings because they 
consider many findings insignificant and follow up by OIG officials is 
not an effective use of resources. 

Written Management Decisions Generally Not Prepared: 

Our review found that the audit files at the three agencies contained
written management decisions for 75 (about 30 percent) of the 246
findings. OMB Circular A-133 requires federal agencies to issue written
management decisions on the audit findings contained in single audit
reports within 6 months of receiving the recipientï¿½s single audit 
report. The management decisions should describe the corrective actions 
agencies consider necessary based on their evaluation of the audit 
findings and corrective action plans contained in the single audit 
reporting package. Since federal agencies are responsible for ensuring 
that the recipients implement adequate corrective action, it is 
important for management to clearly communicate the agencyï¿½s 
expectations and time frames for action through management decisions. 

The issuance of a management decision is also critical because, based on
OMB Circular A-133, award recipients may consider an audit finding 
invalid and not warranting further action if all the following have 
occurred: 

* a management decision was not issued; 

* 2 years have passed since the audit report in which the finding 
occurred was submitted to the FAC, and; 

* the federal agency or pass-through entity[Footnote 11] is not 
currently following up with the recipient on the audit finding. 

As shown in table 1, the audit files reviewed contained documentation
evidencing management decisions for 75 of the 246 audit findings
contained in our sample audit reports. 

Table 1: Number of Audit Findings with Documented Management Decisions: 

Agency/program: Education/Pell Grant; 
Audit findings: 66; 
Management decisions: Documented: 53; 
Management decisions: Not documented: 13. 

Agency/program: Education/Title I; 
Audit findings: 47; 
Management decisions: Documented: 13; 
Management decisions: Not documented: 34. 

Agency/program: HUD/Community Development Block Grants (CDBG); 
Audit findings: 37; 
Management decisions: Documented: 3; 
Management decisions: Not documented: 34. 

Agency/program: HUD/Section 8; 
Audit findings: 48; 
Management decisions: Documented: 2; 
Management decisions: Not documented: 46. 

Agency/program: Transportation/Capital Investment and Formula Grants 
(CIFG); 
Audit findings: 17; 
Management decisions: Documented: 4; 
Management decisions: Not documented: 13. 

Agency/program: Transportation/Highway Planning and Construction Grants 
(HPCG); 
Audit findings: 31; 
Management decisions: Documented: 0; 
Management decisions: Not documented: 31. 

Agency/program: Total; 
Audit findings: 246; 
Management decisions: Documented: 75; 
Management decisions: Not documented: 171. 

[End of table] 

Agency officials noted several possible reasons that management 
decisions were not prepared and available for our review including: 

* the findings were insignificant and did not require further action; 

* follow up with recipients was performed but not documented; 

* the audit report that identified the finding also indicated that the
recipient had corrected the audit finding as of the report issuance 
date, and; 

* subsequent audit reports were reviewed to determine if the finding had
been corrected. 

The audit files generally did not contain an indication that agency 
officials considered any of these four factors or used them as a 
justification for not preparing the required management decisions. 
Since it is the federal agencyï¿½s responsibility to ensure that 
corrective action implemented by the recipient will correct a finding, 
the agency should be on record as agreeing with the recipientï¿½s planned 
or completed corrective actions or pointing out other actions needed to 
correct the findings. In our view, none of the reasons cited justify 
the nonissuance of a management decision. For example, by including a 
finding in a single audit report, auditors are indicating that the 
finding is significant since government auditing standards require 
auditors to report all significant findings in the report. The 
standards identify other means of communicating insignificant findings. 
Regarding the use of subsequent-year single audit reports to justify 
the nonissuance of a management decision, it should be noted that 
single audit reports must be issued no later than 9 months after the
recipientï¿½s year-end. By waiting for the subsequent yearï¿½s audit 
report, as many as 21 months could have expired from the end of the 
audit period for which the finding was initially reported to the 
receipt of the subsequent yearï¿½s audit report. In our opinion, waiting 
for the subsequent audit report would not result in a timely 
notification to the recipient of the agencyï¿½s position on an audit 
finding and the recipientï¿½s planned, in progress, or completed 
corrective actions. 

The following section provides more detailed information on the results 
of our review of management decisions. 

Management Decisions - Education: 

Our review of the audit files for the 113 Title I and Pell Grant audit 
findings at Education revealed that 66 of the findings had documented 
management decisions. Of the 47 with no written management decisions, 
25 were in the Cooperative Audit Resolution and Oversight Initiative 
(CAROI) process, which is discussed in more detail below. 

When either the OESE or Pell Grant program offices receive single audit
findings, special teams assess the seriousness of the audit findings to
determine the amount of attention needed for resolution. According to
draft Education guidance, Post Audit User Guide, which has been in 
effect since 1987 and has been periodically updated, the purpose of this
assessment process is to promote the most efficient use of external 
audits to assist management in achieving program goals and discharging 
its fiduciary responsibilities. The teams evaluate the audit findings 
based on criteria established in the draft guidance, which states that 
audit findings may be addressed using three approaches -- full 
resolution, abbreviated resolution, or technical assistance. The 
principle criteria used in evaluating each finding and determining the 
resolution approach is the seriousness of the finding, that is, the 
monetary or program compliance issues identified or the recurring 
nature of the finding. Full and abbreviated resolution approaches 
require written notification to the recipient. The guidance states that 
resolution by technical assistance does not require a written 
management decision. However, it does require that all communication
with the auditee in the resolution of an audit finding using the 
technical assistance approach be documented and available in the audit 
file. 

Education has also developed a process to facilitate management 
decisions on complex audit issues affecting multiple programs. This 
process, CAROI, uses a collaborative approach to resolve audit findings 
and their underlying causes. During the CAROI process, representatives 
from Educationï¿½s program and OIG offices work collaboratively with 
state and local program managers to address complex audit findings 
affecting multiple programs. An agency official noted that the process 
may not be completed in the 6-month management decision time frame set 
forth in OMB Circular A-133. For those findings in our sample being 
addressed using the CAROI process, the 6-month requirement was not met. 
It should be noted, however, that an Education report[Footnote 12] 
stated that CAROI projects have had a positive impact in reducing 
recurring findings identified in statewide audits. 

Of the 25 single audit findings with no management decisions that are 
in the CAROI process, 22 relate to one recipient. Education officials 
told us that they are working with other federal agencies, including 
the Department of Justice, on fraud and other program-related issues 
involving this recipient. 

Regarding the remaining 22 findings with no written management 
decisions, officials stated that, depending upon the approach the 
review team determined appropriate for the audit finding, program staff 
may have followed up with recipients but not prepared a management 
decision. They noted that, although no record of these discussions was 
in the audit files, this could have been the case for at least some of 
the 22 audit findings. 

OMB Circular A-133 requires that management decisions clearly state
whether or not the federal agency sustains the audit finding, the 
reasons for the decision, the expected corrective action, and that they 
describe any appeal process available to the recipient. Further, the 
Circular requires that, if the recipient has not completed corrective 
action as of the management decision date, the decision should give a 
timetable for this action. For the 66 findings with written management 
decisions, our review showed that the management decisions often did 
not contain all of the elements required by OMB Circular A-133. For 
example, 5 of the Title I management decisions and 25 Pell Grant 
management decisions did not include a timetable for follow up on the 
implementation of corrective action. Further, 3 of the Pell Grant 
findings did not include expected action to correct the findings. 

Management Decisions - HUD: 

HUD files contained only five written management decisions for the 85
CDBG and Section 8 program audit findings we reviewed. The audit files
contained three written management decisions for the 37 CDBG audit
findings. Fifteen of these findings were first-time findings and 22 were
recurring findings. Of the recurring findings, 16 related to one 
recipient. Further, only two of the 48 Section 8 findings had written 
management decisions. Of these findings, 16 were first-time findings 
and 32 were recurring findings. Eighteen of the recurring findings were 
for one recipient. This recipient has been identified as having 
multiple internal control issues related to HUD and other federal 
agencies that require coordination with the OIG and other federal 
agencies. HUD officials stated that they were continuing to work with 
the recipient to resolve these issues. 

Officials from both the Offices of Community Planning and Development
and Public and Indian Housing noted that one possible reason for the 
lack of a written management decision was that program personnel 
reviewed the subsequent yearï¿½s single audit reports and determined that 
no further action was necessary based on the status of corrective 
actions as cited in the report. Our review of the calendar year 2000 
audit reports indicated that 27 (13 CDBG and 14 Section 8) of the 85 
findings in our sample had been corrected. Therefore, this possibility 
did not account for most of the instances of missing management 
decisions. Further, as noted earlier, agencies generally receive 
subsequent single audit reports well after the 6-month time frame 
within which management decisions are required. So, at a minimum, the 
agency did not comply with OMB Circular A-133 timing requirements for 
the issuance of management decisions. 

Like Education, HUDï¿½s management decisions did not include all OMB
Circular A-133-required information. For example, two of the three CDBG
program management decisions did not include a timetable for follow up. 

In response to our work, HUDï¿½s Office of Community Planning and 
Development issued Field Guidance on Single Audit Act Requirements (CPD 
Field Guidance) on March 13, 2002. This guidance contains requirements 
outlined in OMB Circular A-133, including the requirements that 
management decisions clearly state whether or not the audit finding is
sustained, the reasons for the decision, and the expected grantee 
action. If the recipient has not completed corrective action, the 
guidance requires that the field offices establish a timetable for 
follow up. Finally, the guidance requires that management decisions 
describe the appeal process available to the recipient. In issuing this 
guidance, CPD referred to our review as showing that more detailed 
guidance was needed to help ensure that CPD properly carries out its 
oversight responsibilities. This guidance is a positive step toward 
ensuring that management decisions are issued for all audit findings 
related to the CDBG program. According to PIH officials, they plan to 
issue guidance covering the process for correcting audit findings 
contained in single audit reports in the summer of 2002. 

Management Decisions - Transportation: 

Transportation files contained only four written management decisions 
for the 48 CIFG and HPCG audit findings we reviewed, all of which 
related to the 17 CIFG findings. Transportation guidance requires each 
Operating Administration to establish a system to ensure prompt 
responses to audit reports and implementation of audit recommendations. 
The guidance requires that the system provide for a complete record of 
actions taken on audit recommendations. Transportation assigns program 
managers in field offices the responsibility for preparing management 
decisions and following up on corrective action for those findings 
addressed in OIG ï¿½actionï¿½ memoranda. Despite this guidance, we found 
few written management decisions in the audit files reviewed. 

The OIG issued ï¿½actionï¿½ memoranda for 4 of the 17 CIFG findings.
Management decisions existed for 2 of these findings, 1 of which 
involved questioned costs of over $300,000 and for which the single 
audit report noted that corrective actions had been completed. The 
other 2 management decisions involved audit findings for which the OIG 
had issued ï¿½informationalï¿½ memoranda. Further, of the 31 HPCG findings, 
the OIG issued two ï¿½actionï¿½ memoranda that addressed 10 findings. The 
audit files did not contain written management decisions for these 
findings. 

Our review of the management decisions to determine if they contained 
all OMB Circular A-133-required elements revealed that none of the four
Transportation management decisions did so. For example, they did not
contain information on the reason for the decision to sustain or not 
sustain the audit finding or a description of the appeals process. 

Follow Up Needed to Ensure Completion of Corrective Actions: 

Program officials at the three agencies told us that they follow up on 
the implementation of corrective actions through site visits, telephone
conversations, and review of subsequent single audit reports. Although 
the audit files contained some information relating to corrective 
actions, we found very little documentation identifying program or 
field office evaluations of and conclusions on the adequacy of the 
corrective actions taken by recipients. OMB Circular A-133 requires 
agencies to provide the recipient with a timetable for implementing 
corrective action and to ensure that the award recipient takes 
appropriate and timely corrective actions. The Comptroller Generalï¿½s 
Standards for Internal Control in the Federal Government states that 
agency efforts to monitor internal controls should include policies and 
procedures for ensuring that the findings of audits and other reviews 
are promptly resolved. The lack of documentation makes it difficult for 
management to ensure that program offices and award recipients are 
meeting their audit finding-related responsibilities in an appropriate 
and timely manner. 

Corrective Action Follow Up - Education: 

Our review of the audit files for the 47 Title I and 66 Pell Grant audit
findings showed that 5 Title I and 25 Pell Grant files did not contain
documentation of follow-up actions. Educationï¿½s program managers
responsible for the Title I and Pell Grant programs stated that they 
verify that corrective action was implemented using site visits and 
subsequent single audit reports. Educationï¿½s draft guidance requires 
program officials to maintain accurate records of all audit follow-up 
activities, including all correspondence, documentation, and analysis 
of the documentation. Based on our audit file review, we were unable to 
verify that the agency had evaluated and concluded on the adequacy of 
the recipientï¿½s corrective actions. 

Corrective Action Follow Up - HUD: 

Our review of 85 single audit findings for the CDBG and Section 8 
programs identified documentation of follow up for 28 of the findings. 
For example, the audit files contained evidence of a review of 
subsequent single audit reports for 14 findings and of follow up with 
the recipient and determination that the audit finding was resolved for 
4 findings. 

CPD and PIH officials advised us that program managers located in field 
offices are tasked with following up with recipients on audit findings 
contained in single audit reports. They told us that these offices used 
various procedures, including contacting the federal award recipients 
concerning the audit findings and corrective actions and reviewing the 
status of the audit findings in the subsequent single audit reports, to 
determine if the audit findings were corrected. If considered 
appropriate, field offices might also conduct on-site monitoring visits 
at the award recipients. While field office staff may have actively 
followed up on findings, our review of audit files provided by field 
office locations showed evidence of follow up or monitoring for only 28 
of the 85 findings. 

The March 2002 CPD Field Guidance requires each field office to maintain
files that contain all audit-related communications with the CPD award
recipients, including any appropriate reports from the FAC, audit 
reports, and, if applicable, the auditorï¿½s management letter.[Footnote 
13] As noted above, PIH officials stated that they also plan to issue 
guidance in the summer of 2002 covering the process for correcting 
audit findings contained in single audits. 

Corrective Action Follow Up - Transportation: 

Our review of documentation provided by Transportation for the 17 CIFG
and 31 HPCG audit findings revealed little evidence of follow-up 
activity in the audit files. Although these files contained some 
information relating to corrective actions, they generally did not 
contain documentation identifying agency evaluations of and conclusions 
on the adequacy of the corrective actions taken by recipients. Without 
documentation that corrective action is appropriate, timely, and 
implemented, management cannot be sure that program offices and award 
recipients are meeting their audit finding-related responsibilities. 

During discussions with field office program managers, we determined 
that follow-up activities vary widely. For example, personnel in one 
field office told us that the office follows up with the recipient to 
ensure that corrective action has been implemented and that follow up 
is tracked and documented using an automated system. Other field office 
program managers told us that they review the subsequent yearï¿½s single 
audit report to determine if the deficiency has been corrected and may 
verify that corrective action has been implemented during site visits 
to the recipient. However, the audit files reviewed did not contain 
evidence of agency evaluations of or conclusions on the adequacy of 
recipient actions to correct audit findings. 

Audit follow-up guidance issued by the Office of the Secretary in 1989
requires each Operating Administration to establish a system to ensure
prompt responses to audit reports and the implementation of audit
recommendations and further states that the system must be capable of
reporting in a timely and uniform manner in order to meet information 
and reporting requirements. Transportationï¿½s current guidance, which it 
issued in March 2000, makes no mention of several OMB requirements 
included in earlier agency guidance, including the contents of 
management decisions, timely responses to audit reports and follow up 
procedures, and maintaining records of follow-up actions. 

Single Audit Results are Not Communicated to Agency Management: 

Based on discussions with officials at the three agencies, none of the
program offices with management decision preparation and corrective
action responsibilities reported single audit results or recipient 
actions to correct single audit findings to agency management. Although 
neither the Single Audit Act nor OMB Circular A-133 requires this 
reporting, the Comptroller Generalï¿½s Standards for Internal Control in 
the Federal Government note that agency officials, program managers, 
and others responsible for managing and controlling program operations 
need relevant, reliable, and timely information to make operating 
decisions, monitor performance, and allocate resources. 

Discussions with officials at each of the three agencies revealed that, 
even when program or other offices have information on single audit 
results and recipient actions to correct single audit findings, this 
information is not communicated to agency management for review, 
analysis, and possible action. 

* Although officials at Educationï¿½s OCFO told us that their audit 
resolution tracking system was capable of reporting on the status of
single audit findings, no reporting to Education management occurred. 

* According to an OCFO official at HUD, the various program offices
within HUD do not prepare reports on the status of audit findings
contained in single audit reports. 

* At Transportation, the OIG reports unresolved and incompletely
corrected single audit findings in its semi-annual report to the 
Congress. However, the report does not include information on all 
single audit findings, since the OIG only tracks findings for which it 
issues ï¿½actionï¿½ memoranda, and the report contains only general 
information and no specific details on the nature and extent of single 
audit findings. 

Information for such management reporting can come from many sources
including agency analyses of single audit findings and agency databases,
such as HUDï¿½s REAC database. Another valuable source of information is
the FAC single audit database. This database consists of information
obtained from a data collection form that recipients send to the FAC as 
part of their single audit reporting package. It contains summary 
information on the auditor, the recipient and its federal programs, and 
audit results. The database contains about 4 years of information on 
over 30,000 annual single audit reports. The various data query options 
available provide potential users, including program managers, 
auditors, and other interested parties, with significant amounts of 
readily available information on grant recipient financial management 
and internal control systems and on compliance with federal laws and 
regulations. 

To determine the types and frequency of audit findings at the six 
programs in the three agencies included in our review, we queried the 
FAC single audit database and reviewed the sample single audit reports 
to determine if the grantees in our selection had similar types of 
audit findings. Our query showed that similar audit findings were 
reported for grantees in each of the programs. For example, 33 of the 
66 audit findings we reviewed for the Pell Grant program were 
attributable to granteesï¿½ noncompliance with special tests and 
provisions applicable to the program. These findings typically involved 
situations where colleges or universities were unable to provide 
documentation to show that students receiving federal aid attended 
class. For Title I programs, 11 of the 47 audit findings reviewed were 
attributable to granteesï¿½ noncompliance with allowable costs provisions 
specified in the grant. Further, our query showed 16 of the 37 audit 
findings for recipients of HUDï¿½s CDBG program were attributable to 
noncompliance with the grants reporting requirements, and 18 of the 48 
HUD Section 8 program audit findings were attributable to granteesï¿½ 
noncompliance with the special test and provisions requirements of the 
Section 8 grants. 

We also queried the FAC single audit database to determine if any of the
programs selected for review had recurring types of audit findings. We
found several instances in which single audit reports contained types of
audit findings that were repeated in 3 or more consecutive years. For
example, 4 of the 10 Education Pell Grant recipient reports identified
eligibility findings that repeated in 3 or more consecutive years. For 
the Title I program, 4 grantees had subrecipient monitoring findings 
that repeated in 3 or more consecutive years. At HUD, a review of the 
database and single audit reports showed that 15 of the 37 CDBG audit 
findings were not corrected over a period of 3 successive years. Twelve 
of these 15 recurring audit findings occurred at one recipient. The 
remaining 3 recurring audit findings occurred at three other 
recipients. In addition, CDBG and Section 8 grants also had recipients 
with audit findings attributable to reporting, allowable costs, and 
eligibility that were repeated in 3 or more subsequent years. 
Transportation recipients selected for review had cash management, 
subrecipient monitoring, allowable costs, and equipment and real 
property management findings that were repeated in 3 or more years at 
individual recipients. 

This type of information could be a valuable tool in improving grants
management by helping management evaluate agency oversight and
monitoring activities and identify problem areas. It could also assist 
in setting priorities for actions needed to correct program problems. In
addition, it can provide agencies with information needed to help them
accomplish their responsibilities as established by The Presidentï¿½s
Management Agenda, Fiscal Year 2002, initiative to reduce improper
payments in federal programs. 

Conclusions: 

The first step in an agencyï¿½s efforts to address single audit findings 
is obtaining single audit reports and distributing them to agency 
officials responsible for reviewing the report findings and taking 
actions on those findings. Each of the three agencies in our review had 
procedures for communicating audit reports and/or audit finding 
information to program or field offices for action. 

OMB Circular A-133 requires agencies to prepare written management
decisions on audit findings contained in single audit reports. Our 
review of the audit files at the three agencies found that they issued 
written management decisions for only 75 of the 246 audit findings 
contained in the single audit reports included in our review. The 
agencies noted several reasons for not preparing written management 
decisions, including (1) the audit findings were considered 
insignificant or not serious, (2) follow up with recipients was 
performed but not documented, (3) the single audit report stated that 
the recipient had corrected the finding prior to the reportï¿½s issuance, 
and (4) the subsequent yearï¿½s single audit report indicated that the 
recipient had corrected the finding. In our view, none of these reasons 
justify the nonissuance of a management decision. Further, the audit 
files generally did not contain any evidence that agency officials 
considered these factors or otherwise considered the preparation of
management decisions. 

Education, HUD, and Transportation do not adequately document their
evaluations of and conclusions on the corrective actions taken by
recipients to correct single audit findings. While the audit files 
contained copies of recipient documents and other records, they 
generally did not contain agency evaluations of or conclusions on the 
adequacy of the recipient actions cited in those records. This 
documentation is critical because each agency relies heavily on 
program, regional, or field offices to ensure that corrective actions 
occur and none requires reporting on the corrective action status on 
all findings contained in single audit reports. Therefore, requiring 
documentation can help ensure that these offices perform their 
responsibilities in ensuring that recipients take all necessary 
corrective actions. 

Through discussions with agency officials, we determined that none of 
the agencies report single audit results or the status of single audit 
findings and implementation of action to correct deficiencies to agency 
management. This reporting can strengthen accountability and oversight 
by providing management with information useful in the analyses of both 
programwide problems and recurring problems at specific recipients. 
Further, because many federal programs that are subject to single 
audits also experience improper payments, this reporting can be useful 
to agency management in addressing the requirements established in The 
Presidentï¿½s Management Agenda, Fiscal Year 2002, for reducing such 
payments. 

Recommendations for Executive Action: 

To ensure that recipients correct the weaknesses identified in single 
audit reports, we recommend that the Secretary for the departments of
Education, HUD, and Transportation ensure that each has established and
follows guidance that addresses the OMB Circular A-133 requirements for
all agency programs whose awards are subject to the Single Audit Act. 
This guidance should clearly define the roles and responsibilities of 
each agency unit in ensuring appropriate and timely actions on single 
audit findings including: 

* preparing and issuing management decisions that clearly communicate 
the results of agency analyses of single audit findings and the adequacy
of corrective actions implemented or planned by the recipient; 

* performing follow up procedures to ensure that the recipient 
implemented adequate corrective action, and; 

* documenting results of evaluations of and conclusions on recipientsï¿½
actions to correct audit findings. 

We also recommend that the Secretary of each of the three agencies
implement policies and procedures for reporting information to agency
management on (1) the types and causes of findings identified in single
audit reports and (2) the status of corrective actions. 

Agency Comments and Our Evaluation: 

Education agreed with the thrust of the reportï¿½s findings and 
recommendations. Its comments (reprinted in appendix I) noted that it is
important to ensure that recipients correct the weaknesses identified in
single audit reports and that the department takes the necessary steps 
to ensure the implementation of single audit guidance as required under 
OMB Circular A-133. An attachment to the comments, which is not 
reprinted, provided several clarification points and suggested 
additions to the report, which we considered and included in the 
report, as appropriate. 

HUD agreed with the reportï¿½s findings and recommendations. Its comments 
(reprinted in appendix II) described actions that HUD is taking to 
improve its oversight and use of single audits to strengthen its program
compliance and performance. They also contained several minor technical
or editorial revisions that we considered and included in the report, as
appropriate. 

The Department of Transportationï¿½s comments (reprinted in appendix III)
raised several issues about the scope of our audit work, the conclusions
reached, and the recommendations made. 

* Transportation questioned our audit scope and suggested that we 
should have conducted independent field testing to determine the extent 
and effectiveness of recipient actions taken. Our objective was to 
determine what agencies do to ensure that recipients take timely and 
appropriate action; not to independently reperform the steps that 
program and other offices, as applicable, would need to do to evaluate
recipient corrective actions. To accomplish our objective, we examined
agency audit files to determine the extent to which those files 
contained evidence of agency actions to ensure that recipients had taken
appropriate and timely corrective actions on all audit findings. As we
noted in the report, the audit files generally did not contain evidence 
of these actions either through written management decisions or through
documentary evidence of agency evaluations of or conclusions on 
recipient corrective actions. 

* Transportation noted that not all single audit findings are useful or
meaningful and that our report did not recognize this point. Two points
are relevant here. First, the Comptroller Generalï¿½s Government Auditing 
Standards, which auditors performing single audits are required to 
follow, requires auditors to ï¿½report the significant audit findings 
developed in response to each audit objective.ï¿½ The standards also note 
that audit findings not reported, because of their insignificance, 
should be separately communicated to the auditee. The auditors included 
all of the findings discussed in our report in their single audit 
reports. Our objective was not to evaluate the usefulness of audit 
findings or whether auditors made the right determination as to 
significance in including the 48 findings in the reports covered by our
review. Regarding the second point, the ï¿½Management Decisions ï¿½
Transportationï¿½ section of the report that we provided for comment 
identified management decision information for findings addressed by
both ï¿½actionï¿½ and ï¿½informationalï¿½ memoranda. In using these different
memoranda, Transportation distinguished between serious or significant 
and other types of findings. We did not separately judge or evaluate 
the decision to use one or the other type of memoranda. However, OMB 
Circular A-133 does not distinguish between the serious or other types 
of audit findings. It clearly states that actions are required on all 
audit findings. 

* Transportationï¿½s comments also discussed the agencyï¿½s process for
reviewing and tracking audit findings. They noted that the agency
tracks significant findings in the joint OIG/management tracking system
until documentation is provided that action has been completed and
stated that less significant actions are tracked locally. The draft 
report we provided for comment generally contained this same information
and discussed the types of memoranda the agency used to communicate
single audit findings to appropriate agency offices. We do not take 
issue with the agencyï¿½s process. However, as our report states, our 
review of audit files, irregardless of whether the agency handled the 
audit findings with ï¿½actionï¿½ or ï¿½informationalï¿½ memoranda, found that 
the files generally did not contain documentation identifying agency 
evaluations of and conclusions on the adequacy of the corrective 
actions taken by recipients. 

* Transportation stated that our report recommends that each department
create a new system or systems for communicating audit findings to top
management. While our report recommends reporting to top management, it 
also notes that information for such reporting can come from such 
sources as agency analyses of single audit findings, agency databases, 
and the FAC single audit database. We do not recommend or suggest that 
agencies develop new systems. Agencies such as Transportation, that 
uses a joint OIG/management tracking system for significant findings, 
should use information obtained from that or other existing systems to 
summarize single audit results and the status of recipient corrective 
actions and communicate that information to top management. 

The final agency comment notes that documentation concerns alone are
insufficient to demonstrate that agencies are ineffective at ensuring 
that grantees achieve the changes recommended by single audits to 
safeguard federal funds. Our report does not make the point that 
agencies are ineffective if they do not maintain appropriate 
documentation. Clearly, recipients can take timely and appropriate 
action to correct audit findings without regard to federal agency 
documentation that such action occurred. However, absent documentation 
that timely and appropriate actions occurred, agency management would 
have no basis for concluding that agency follow-up with recipients 
occurred or that recipient corrective actions, if any, were timely and 
appropriate. 

We are sending copies of this report to the Ranking Minority Member,
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations, House Committee on Government Reform;
the Chairman and Ranking Minority Member, Senate Committee on 
Appropriations; the Chairman and Ranking Minority Member, House
Committee on Appropriations; the Chairman and Ranking Minority Member, 
Senate Committee on Governmental Affairs; the Chairman and Ranking 
Minority Member, House Committee on Government Reform; the Chairman and 
Ranking Minority Member, Senate Budget Committee; and the Chairman and 
Ranking Minority Member, House Budget Committee. We are also sending 
copies to the Director of the Office of Management and Budget and 
agency CFOs and IGs. Copies of this report will be made available to 
others upon request. This report will also be available on GAOï¿½s home 
page [hyperlink, http://www.gao.gov]. 

Please call me at (213) 830-1065 or Tom Broderick, Assistant Director, 
at (202) 512-8705 if you or your staff have any questions about the 
information in this report. Key contributors to this report were Marian 
Cebula, Cary Chappell, Mary Ellen Chervenic, Perry Datwyler, Taya 
Tasse, and Jack Warner. 

Sincerely yours, 

Signed by: 

Sally E. Thompson: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Comments From the Department of Education: 

United States Department Of Education: 
Office Of The Chief Financial Officer: 
400 Maryland Ave., S.W. 
Washington, D.C. 20202-4300: 
[hyperlink, http://www.ed.gov] 
" Our mission is to ensure equal access to education and to promote 
educational excellence throughout the Nation." 

June 10, 2002: 

Ms. Sally E. Thompson: 
Director, Financial Management and Assurance: 
U.S. General Accounting Office: 
Washington, DC 20548: 

Dear Ms. Thompson: 

The Secretary has asked that I respond to your request for comments on 
the GAO draft report entitled Single Audit: Actions Needed To Ensure 
That Findings Are Corrected (GAO-02-705), which was transmitted to the 
Department of Education on June 4, 2002. 

We are pleased to note from your report that the Department is doing a 
good job in carrying out its responsibilities under the Single Audit 
Act. We know there is room for improvement. Let me state from the 
outset that the Secretary and I are strongly committed to making 
significant progress towards sound financial management and instituting 
a Culture of Accountability within the Department of Education. Your 
report is welcomed and will help us to make further improvements in our 
ability to comply with responsibilities under the Single Audit Act. 

We have long recognized the importance of single audits as a critical 
management tool and, over the years, have adopted some unique and 
innovative approaches. For example, as you have noted in your report, 
the Cooperative Audit Resolution and Oversight Initiative (CAROI) is a 
practical approach to addressing complex and recurring single audit 
findings. Through CAROI, the Department works to bring all key 
partners, both Federal and State, to the table to address audit 
findings. We've had excellent results in resolving issues in a 
meaningful and permanent way. One example is our collaborative effort 
with the State of Pennsylvania. Over 120 findings, involving complex 
and high dollar issues, were resolved in a relatively short period of 
time. As a result of CAROI, Pennsylvania's subsequent single audit did 
not contain any repeat findings. Another improvement in place is 
"Triage," a process by which the Department assesses the seriousness of 
single audit findings to determine the amount of attention needed for 
resolution. We are committed to making additional improvements in the 
Department's single audit process. 

We agree with the general thrust of your findings and recommendations. 
We believe it is important to ensure that recipients correct the 
weaknesses identified in single audit reports and that the Department 
takes the necessary steps to ensure the implementation of single audit 
guidance as required under OMB Circular A-133. 

We also concur with your recommendation that agency management be kept 
apprised of single audit findings and grantee corrective actions. While 
the Department could improve in this area by more effectively sharing 
information centrally across program areas, this activity is in large 
measure already taking place. Management issues hundreds of decisions a 
year on single audit findings addressing program compliance 
requirements. At ED, these decisions are made at the Assistant 
Secretary's level. Thus, the Assistant Secretaries (or their designees) 
are aware of and involved in addressing the compliance issues affecting 
programs for which they are responsible. We also communicate to agency 
management on repeat or serious audit findings through the CAROI and 
Triage processes discussed above. 

We are also attaching additional, more detailed comments and 
clarifications for your consideration. 

Thank you for the opportunity to comment. My staff and I, as well as 
staff from Title I and the Office of Federal Student Aid (FSA), are 
prepared to respond if you or your representatives have any questions. 

Sincerely, 

Signed by: 

Jack Martin: 

Attachment: 

[End of section] 

Appendix II: Comments From the Department of Housing and Urban 
Development: 

U.S. Department of Housing and Urban Development: 
Office Of The Chief Financial Officer: 
Washington, D.C. 20410-0100: 

June 11, 2002: 

Ms. Sally E. Thompson: 
Director, Financial Management and Assurance: 
U.S. General Accounting Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Thompson: 

Thank you for the opportunity to review and comment on the General 
Accounting Office's (GAO) proposed report entitled Single Audit. 
Actions Needed To Ensure That Findings Are Corrected (GAO-02-705). We 
agree with the GAO's findings and recommendations pertaining to the 
U.S. Department of Housing and Urban Development (HUD) and are taking 
action to improve our oversight and use of single audits to strengthen 
HUD's program compliance and performance. The following sections 
provide our specific comments on GAO's recommendations and requests for 
consideration of minor technical or editorial revisions. 

HUD Comments on the GAO Recommendations: 

Recommendation: The GAO recommends that "the Secretary for each of the 
three agencies ensure that the agency has established and follows 
guidance that addresses the OMB Circular A-133 requirements for all 
agency programs whose awards are subject to the Single Audit Act." 

Comments: We agree with this recommendation and are in the process of 
developing Departmental guidance for all HUD program areas whose awards 
are subject to the Single Audit Act. In addition, HUD's Office of 
Public and Indian Housing (PITH) is in the process of preparing 
guidance for its field office staff. This guidance will reflect the 
requirements listed in OMB Circular A-133 for monitoring and follow-up 
of single audit reports and management decisions. PITH will also update 
its Monitoring Guidebook, which is currently being revised, to reflect 
these requirements. The PITH guidance will be consistent with the HUD 
Office of Community Planning and Development's (CPI)) field staff 
guidance noted in the GAO audit report. 

Recommendation: The GAO recommends that "the Secretary of each of the 
three agencies implement policies and procedures for reporting 
information to agency management on (1) the types of findings 
identified in single audit reports and (2) the status of corrective 
actions." 

Comments: We agree with this recommendation, and have plans to assure 
that a central single audit tracking system is available to cover all 
HUD program activity. However, we believe a more cost effective and 
efficient use of resources would be to enhance the Federal Audit 
Clearinghouse (FAC) database system to produce finding reports and 
corrective action tracking and status information, versus individual 
agency systems efforts. Therefore, it is suggested that the second 
sentence at the top of page 5 be reworded to read: "We also recommend 
that the Federal Audit Clearinghouse provide the capability to easily 
produce reports on (1) the types of findings identified in single audit 
reports and (2) the status of corrective actions for use by agency 
program managers." Additionally, we suggest that the first sentence 
below the bullets on page 33 be reworded to read: "We also recommend 
that the Federal Audit Clearinghouse provide a user-friendly capability 
to report information by agency program on (1) the types...." 

Other HUD Comments: 

We request the GAO's consideration of the following clarifying or 
editorial revisions to the final report. 

1. On page 9, footnote number 8 refers to the Section 8 program and the 
Office of Public and Indian Housing's (PIH) responsibility for overall 
management. This statement is not accurate. P11-I has responsibility 
for oversight and management of only the Section 8 Tenant-Based 
programs, as was noted during the close-out meeting with GAO staff. 
HUD's Office of Multifamily Housing has responsibility for the Section 
8 Project-Based programs. Therefore, we believe a clarification to that 
effect is necessary in this report to accurately depict the duties and 
responsibilities of NH. Also, on page 9, last line above the footnotes, 
please delete the "and" between "Development" and "Block" and add the 
word "entitlement" after "(CDBG)." 

2. On page 13, the report states that recipients electronically submit 
financial and compliance data to REAC for database entry. REAC does not 
perform database entries. Recipients input data into the REAC system. 
The report failed to mention that recipients' submissions also include 
the top-level financial statements (not just "financial statement 
data"), notes to the financial statements, and the schedule of 
expenditures of Federal awards. Therefore, we suggest adding the 
following phrase at the end of the first sentence in the last 
paragraph: "which includes all financial statements, notes to the 
financial statements, and the schedule of expenditures of Federal 
awards." 

3. On page 14, the first line before the sentence that begins with "PIH 
officials stated..." insert "Findings that are in non-compliance with 
HUD regulations and agreements are referred to the HUD Departmental 
Enforcement Center for processing and follow-up" 

4. On page 21, second paragraph, the first sentence should be reworded 
to delete "CDBG" and "Section 8" and state "Officials from both the 
Offices of Community Planning and Development and Public and Indian 
Housing noted...." 

Again, the Department appreciates the opportunity to comment on this 
proposed report before publication. If you have any questions, please 
contact James M. Martin. Assistant Chief Financial Officer for 
Financial Management, at (202) 708-0638. 

Sincerely, 

Signed by: 

Angela M. Antonelli: 
Chief Financial Officer: 

[End of section] 

Appendix III: Comments From the Department of Transportation: 

U.S. Department of Transportation: 
Assistant Secretary for Administration: 
400 Seventh Street S.W. 
Washington, D.C. 20590: 

June 12, 2002: 

Ms. Sally E. Thompson: 
Director Financial Management and Assurance: 
U.S. General Accounting Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Thompson: 

The Department appreciates the opportunity to review the General 
Accounting Office (GAO) draft report, "Single Audit: Actions Needed to 
Ensure that Findings Are Corrected." The draft report findings and 
recommendations are based primarily on incomplete paperwork that GAO 
identified in agency single audit files. While examining agency files 
relating to single audits is a useful first step for gauging agency 
actions, it does not provide sufficient evidence to demonstrate whether 
agencies are taking effective action with single audit findings. This 
would require the draft report to go beyond the agency files and 
evaluate the validity and potential utility of the single audit 
recommendations and conduct independent field-testing to determine the 
extent and effectiveness of actions taken. 

The key to understanding agency actions on single audit findings is the 
realization that not all single audit findings are useful or 
meaningful, an issue missed in the draft report. Simply examining the 
number of audit findings does not address the utility of findings, a 
significant issue with single audits. For example, we routinely receive 
single audit recommendations about separation of duties by grantees in 
finance related areas. Separation of duties may not be possible for 
small recipient organizations because there may only be one staff 
person to cover multiple functions; however, accounting firms are 
compelled to report such findings even though corrective action, such 
as hiring additional staff, may not be cost effective. We did not 
discern any evaluation regarding such quality issues involving audit 
findings, or an attempt to sort out or prioritize single audit findings 
in the GAO draft report. 

The U.S. Department of Transportation has a logical process for 
identifying audit findings, prioritizing its efforts, and determining 
if the actions were taken. For perspective, it is important to realize 
that in FY-2001 the Department provided about $30 billion in grant 
assistance to State and local governments and transportation 
authorities around the country. During the same period, we received 
single audits with recommendations valued at about $10 million, or 
about .03 of 1 percent of the total funds allocated. With the Office of 
Inspector General's (OIG) assistance, each single audit report is 
analyzed and evaluated against 10 criteria, including the dollar impact 
of the finding, the finding's apparent significance, and whether the 
grantee has already taken corrective action, to help prioritize 
management actions in response to single audits. The reports are then 
provided to modal field offices for appropriate action. Significant 
findings are tracked in the Department's joint OIG/management tracking 
system until documentation is provided that action has been completed. 
Less significant actions are tracked locally, as we adhere to the 
general tenet that it is unwise to spend more on corrective actions 
than the sums identified as a result of the audit findings. 

The report recommends that each Department create a new reporting 
mechanism for communicating single audit findings to top management 
based on the presumption that it could assist agencies in identifying 
trends in single audit findings. In order for the GAO draft report to 
construct a convincing case for creating such a system or systems, it 
would need to present a sound cost benefit analysis. Further, since the 
report identified common findings across agencies, it should consider 
whether it makes sense to build a separate system at each Department or 
whether it would be more efficient to create a single Governmentwide 
system. Finally, the report would need to consider whether the Federal 
Audit Clearinghouse system, which already enables reporting relative to 
the type of audit findings associated with the 14 compliance supplement 
requirements, could address this issue. We do not see evidence of any 
such analyses in the draft report. 

Overall, the Department tries to apply sensible good Government 
principles to its implementation of the A-133 Single Audit program. We 
approach these audits based on a logical system for prioritizing 
action, work with grantees to ensure appropriate actions are taken, and 
centrally track the priority audit findings through to completion. 
While the documentation concerns noted in the draft report can be 
addressed, documentation concerns alone are insufficient to demonstrate 
that agencies are ineffective at ensuring grantees achieve the changes 
recommended by single audits to safeguard Federal funding. 

Again, we appreciate this opportunity to review and comment on the 
draft report. Please contact Martin Gertel on 366-5145 with any 
questions. 

Sincerely, 

Signed by: 

Melissa J. Allen: 

[End of section] 

Footnotes: 

[1] U.S. General Accounting Office, Single Audit: Survey of CFO Act 
Agencies, [hyperlink, http://www.gao.gov/products/GAO-02-376] 
(Washington, D.C.: Mar. 15, 2002). 

[2] The FAC single audit database was established as a result of the 
Single Audit Act Amendments of 1996 and contains summary information on 
the auditor, the recipient and its federal programs, and the audit 
results. 

[3] U.S. General Accounting Office, Medicaid Financial Management: 
Better Oversight of State Claims for Federal Reimbursement Needed, 
[hyperlink, http://www.gao.gov/products/GAO-02-300] (Washington, D.C.: 
Feb. 28, 2002). 

[4] We used calendar year 1999 single audit reports because that was 
the most recent year for which all audit reports and agency responses 
were available and it provided the most complete universe from which 
our selection of audit findings could be made. 

[5] The objective of Title I is to improve the teaching and learning of 
children who are at risk of not meeting challenging academic standards 
and who reside in areas with high concentrations of children from low-
income families. 

[6] The objective of the Pell Grant program is to provide eligible 
undergraduate postsecondary students who have demonstrated financial 
need with grant assistance to help with expenses. 

[7] The primary objective of the CDBG program is to develop viable 
urban communities by providing decent housing, a suitable living 
environment, and expanding economic opportunities, principally for 
persons of low or moderate income. 

[8] The primary objective of the Section 8 Tenant-Based program is to 
assist very low income families in affording decent, safe, and sanitary 
housing. 

[9] The objective of the Capital Investment and Formula Grants is to 
assist in financing the planning, acquisition, construction, 
preventative maintenance, and improvement of facilities and equipment 
in mass transportation services. 

[10] The objectives of the Highway Planning and Construction Program 
are to assist states in constructing and rehabilitating the National 
Highway System, foster safe highway design, and replace or rehabilitate 
unsafe bridges. 

[11] OMB Circular A-133 defines a pass-through entity as a nonfederal 
entity that provides a federal award to a subrecipient to carry out a 
federal program. 

[12] Department of Education, Management Challenges: Successes and On-
Going Efforts, (Washington, D.C.: June 2001 [hyperlink, 
http:///www.Ed.Gov/Pubs/Planrpts] (downloaded May 24, 2002). 

[13] The auditorï¿½s management letter contains findings that the auditor 
did not consider significant enough to include in the audit report. 

[End of section] 

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