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A-133 Audits

What is an A-133 audit?  How is it different than a financial statement audit?  While it may not be a question that keeps you up nights, it is worth a look.  First, let’s look at the purpose of the financial statement audit.  What does the opinion say?  “In our opinion, the financial statements present fairly, in all material respects….”  The purpose of a financial statement audit is to opine on whether or not the financial statements are fairly presented; whether or not the financial statements reflect reality.

An A-133 audit leverages off of the financial statement audit and looks at a couple of elements in greater detail.  Specifically, the purpose of an A-133 audit is to look at Compliance and Internal Controls in organizations expending more than $500,000 in federal grant funds in a given year.  It looks at compliance with rules of the federal grant, and with everyday rules and regulations that, if not followed, would have a material effect on the financial statements.  Internal Controls are those policies and procedures an organization has in place to ensure that mistakes (or worse) are caught in the normal course of work.  An A-133 audit considers whether the organization has controls in place to comply with federal rules and regulations, as well as controls to make sure the financial statements are not materially misstated.

There are many rules and regulations surrounding federal grant funds, which, if you think about it, makes a lot of sense.  Federal money comes from the taxpayers (you and me) who want to make sure it is used wisely and honestly.  Office of Management and Budget (OMB) Circulars A-110 and A-122 contain the grant rules for most nonprofit organizations.  Anyone administering federal grants should become well acquainted with them. 

In addition to OMB Circular A-133, which describes the requirements for auditing federal grants, OMB annually publishes a “Compliance Supplement”.  The Compliance Supplement incorporates rules, regulations, and guidance from A-110, A-122, and A-133 and lays out a plan for the audit of both compliance and internal controls. 

If a federal agency has instructions about specific things they want audited, the instructions are also included in the Compliance Supplement.

The Compliance Supplement lists 14 compliance requirements.  When auditors audit compliance with and internal controls over each of the applicable requirements, they will have adequately audited the major federal grant program.

The 14 compliance requirements are:

  • Activities Allowed and Unallowed – Are the grant activities in accordance with the grant documents and federal regulations?
  • Allowable Costs – Are all expenditures under the grant allowable?
  • Cash Management – Are the cash management regulations being followed?
  • Davis-Bacon – If there is construction using federal funds, are prevailing wages paid?
  • Eligibility – If the grant has eligibility requirements, are they being followed?
  • Equipment and Real Property – Are capital equipment and real property adequately tracked and safeguarded?
  • Matching, Earmarking, Supplanting – If the grant has special matching, earmarking, or supplanting requirements, are they being followed?
  • Period of Availability – Do grant expenditures fall within the beginning and end dates of the grant?
  • Procurement, Suspension & Debarment – Has open competition been held for significant purchases?  Have any payments been made to suspended or debarred individuals or companies?
  • Program Income – Has income earned in the grant been used for grant purposes?
  • Reporting – Have the required reports been filed in a timely and accurate manner?
  • Real Property Relocation – If the grant was involved in relocating real estate, have the regulations been followed?
  • Subrecipient Monitoring – Have subrecipients been properly monitored?
  • Special Tests – Any special tests a federal agency wants will go here.

 

After the auditors have looked at your federal grant programs from all of these angles, they will have a very good basis for reporting on your compliance with and controls over your federal grant funds.

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