With not-for-profit and governmental agencies beginning to receive unprecedented amounts of federal funding through the American Recovery and Reinvestment Act (ARRA), the inevitable is upon us and that is the impact that the receipt of ARRA funding will have on the Single Audit. Though ARRA funding may have had some impact on organizations with fiscal years ending June 30, 2009, the larger impact will begin with calendar year end audits. Knowing the impact of ARRA funding on the Schedule of Expenditures of Federal Awards and understanding the compliance requirements that are applicable to ARRA grants will help ensure a successful Single Audit process.

The impact that ARRA funds have on the Schedule of Expenditures of Federal Awards (SEFA) is quite simple. Organizations receiving ARRA funds are required to separately track ARRA funding both in their accounting records, as well as the SEFA. When reporting ARRA funds in the SEFA, a prefix of “ARRA” is required to be added to the program name specifically identifying the program as being an ARRA award. If a grant award includes both ARRA and non-ARRA funds, the ARRA portion of the award is required to be separately presented on the SEFA with the ARRA prefix. Properly identifying and reporting ARRA funds in the SEFA is important, as an error in this disclosure could result in a finding in the organization’s Single Audit report. As such, organizations should ensure the grant intake process includes a detailed review of grant awards, both direct and pass through awards, so that ARRA funding can be properly identified and tracked separately in the accounting records and the SEFA.

Standard Mileage Rates for 2010 The IRS has announced the mileage rates that may be used during 2010 for claiming deductions for operating a motor vehicle for business, charitable, medical and moving purposes. The rate has actually declined from what it was in 2009 due to lowered fuel costs. Beginning January 1, 2010, the standard mileage rates will be: 50 cents per mile for business miles driven 16.5 cents per mile for medical or moving purposes 14 cents per mile for charitable purposes

Once the SEFA is provided to the auditors, the auditors go through a process of selecting major programs for testing. Major programs are those federal programs or clusters of programs, as identified in Part 5 of the Office of Management and Budget (OMB) Compliance Supplement, that the auditors will be applying audit procedures to during the Single Audit. In selecting major programs, the auditor first performs risk assessments on those programs or clusters of programs with expenditures over $300,000 (or 3% of total federal assistance if over $10,000,000). These programs are considered Type A programs. The OMB has issued guidance that if an existing Type A program cluster includes an ARRA program with a new catalog of domestic assistance (CFDA) number, the auditor must automatically assess the program cluster as high risk and select it for auditing. In addition, the OMB has also issued guidance that existing Type A programs with ARRA funding should be considered of higher risk and selected for testing. In rare cases, the auditor might consider programs with ARRA funding to be low risk. If auditors determine a Type A program to be low risk, the auditors then perform additional risk assessments on programs with expenditures generally exceeding $100,000 (Type B programs). Type B programs having ARRA funds are also presumed to be of higher risk. As a result of the OMB considering programs with ARRA funds to be of higher risk, the auditors may be required to audit a greater number of major programs over the next several years, therefore, increasing the time involved in completing the Single Audit.

Key to any grants management system is the proper identification of the compliance requirements that apply to the awards. ARRA funding has introduced unique challenges in that organizations are receiving federal assistance for the first time, others are experiencing significant increases in federal funding and some are having certain activities, such as construction and operating salaries, funded with federal funds for the first time. When first receiving federal awards or, in some cases, prior to committing to receive federal awards, a thorough review of the grant agreement and reference to the current OMB Compliance Supplement (found at www.whitehouse.gov/OMB) should be performed. The terms and conditions of the grant agreement should clearly identify the compliance requirements that will be applicable.

Part 4 of the OMB Compliance Supplement provides detailed information on applicable compliance requirements for specific federal awards. Part 4 is organized by federal agency and provides information on each of the compliance requirements applicable to the specific federal award based on the 14 points of compliance outlined in Part 3 of the compliance supplement. In August 2009, the OMB issued Addendum #1 to the compliance supplement providing additional discussion on the impact ARRA requirements have on federal compliance both generally and how the ARRA requirements impact specific federal programs.

In testing compliance with program requirements, auditors primarily focus on the review of grant agreements and suggested audit procedures in Part 3 of the compliance supplement to determine what tests will be performed. As the quarterly reporting is an integral part of the ARRA program requirements, specific attention will be given to this area during the Single Audit. Though general ARRA reporting guidance was provided to grant recipients in the OMB Memorandum M-09-21, many federal agencies have issued specific guidance primarily as it relates to the calculation and reporting of jobs created. Links to the various federal agencies’ guidance can be found in the FAQ section of Recovery.gov. The OMB plans to soon issue auditors specific guidance on suggested audit procedures to be performed over the Section 1512 ARRA reporting. However, it can be assumed that the audit procedures will focus primarily on ensuring proper support for information and data reported, the proper calculation of jobs created and the timeliness of the reporting. The remaining testing of ARRA funds will follow guidance in Parts 3 and 5 of the OMB compliance supplement and should be similar to the auditing of similar compliance requirements (allowable costs, Davis Bacon Act, etc.) in past audits.

With historical accountability requirements surrounding ARRA funding, organizations should be prepared for increased monitoring of the funds both in the Single Audit process and by granting agencies. Understanding the compliance requirements that apply to these awards and implementing proper internal controls over compliance will ensure a positive outcome in the external monitoring of ARRA funds. Similar to the additional administrative time spent in managing the additional ARRA funds, additional time should be expected for coordinating the Single Audit and external monitoring by federal agencies. As audits of ARRA funding are performed and common compliance mistakes are identified, additional guidance will be provided on the Recovery.gov website, as well as, updates in our newsletter.

Consult a Financial Adviser for more information.