Single Audit Act of 1984 with Amendments
SINGLE AUDIT ACT OF 1984 WITH AMENDMENTS
The U.S. Congress adopted the Single Audit Act (SAA; Public Law 98-502) in 1984 to establish entity-wide audit requirements for state and local governments and Indian tribal governments receiving federal financial assistance. The assistance may include grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, insurance, and direct appropriations from a number of federal agencies. Audits performed under the SAA are intended to satisfy all federal agencies providing assistance to the entity. Before the SAA, federal agencies had the authority to require an audit of each federally funded program or activity. Thus, audit overlaps and organizational inefficiencies existed as there was no coordination among the federal agencies.
GOAL, OBJECTIVES, AND ADMINISTRATION
The goal of the SAA is that one audit can provide both a basis for an opinion on the recipient entity's financial statement and a basis for determining whether federal financial assistance program resources are being managed and controlled appropriately and used in accordance with legal and contractual requirements.
Also included in the SAA objectives are to:
- Establish uniform audit requirements for federally funded financial assistance programs provided to state and local governments and Indian tribal governments
- Promote the efficient and effective use of audit resources
- Establish uniform requirements for audits of federal funds provided to state and local governments
- Ensure that federal departments and agencies reply upon and use audit work performed pursuant to the SAA to the maximum extent practicable
The director of the U.S. Office of Management and Budget (OMB) is responsible for dictating policies, procedures, and guidelines to carry out the SAA. These policies, procedures, and guidelines were initially contained in OMB Circular A-128, Audits of State and Local Governments (1984). Circular A-128 required (1) an audit of the state or local government's (entity's) general-purpose or basic financial statements made in accordance with generally accepted government auditing standards covering financial and compliance audits, and (2) tests of internal accounting and other control systems to provide reasonable assurance that the entity was managing federally assisted programs in compliance with applicable laws, regulations, and the specific provisions of contracts or grants.
During the course of the audit, the auditor must specifically review transactions (expenditures) to determine whether the amounts were used for allowable services and whether the recipients were eligible to receive them. In addition, the auditor must determine if the organization has complied with laws and regulations that may have a material effect on its financial statements and on each major federally assisted program. In 1984 major federal-assisted programs were defined by the SAA as any program for which federal expenditures during the year exceed the larger of $300,000 or 3 percent of such total expenditures.
Upon completion of the audit, the auditor prepares a report that includes (1) the financial statements and a schedule of federal funded programs with a schedule of the total expenditures, (2) an evaluation of internal control systems that identifies the controls evaluated and material weaknesses, if any, and (3) an analysis of compliance stating positive assurance for items tested, negative assurance for items not tested, a summary of cases of noncompliance, and identification of the total amount of expenditures questioned. Since the audit demands skills beyond those necessary for a standard audit, auditors are required to obtain specialized training and expertise. Overall, the audits are a highly rigorous form of oversight.
In 1990 the OMB administratively extended the single audit process to nonprofit organizations by issuing OMB Circular A-133, Audits of Institutions of Higher Education and Other Non-Profit Organizations. Thus thousands of additional organizations—including museums, colleges and universities, school districts, hospitals, voluntary welfare and health organizations—are required to have an audit performed in accordance with the SAA. Organizations receiving federal assistance that expend less than $300,000 must maintain records to support federal financial assistance programs and must have a financial audit performed under generally accepted auditing standards.
AMENDMENTS IN 1996
Congress amended the SAA by passing Public Law 104-156, the Single Audit Act Amendments of 1996. The new law extended the statutory audit requirement to all non-profit organizations and substantially revised various provisions of the 1984 act. The major amendments and changes include:
- Implementation of a risk-based approach to select the major federal programs to be audited rather than selection solely on the basis of total amount of expenditures, thus ensuring greater audit coverage for high-risk programs
- The dollar threshold for single audit coverage increased to $300,000 from $100,000. The amendment also provides for administrative increases to the threshold but decreases are prohibited
- Audit requirements are triggered by federal funds expended rather than funds received
- Auditors must provide a summary of the results of their work concerning the audited entity's financial statement, internal controls, and compliance with laws and regulations
- Auditors must prepare and sign a data-collection form that is submitted to the federal clearinghouse rather than submitting the full audit report
- Audit report due date is reduced from thirteen to nine months
Overall, the SAA Amendments of 1996 address a number of issues that emerged during and after the implementation of the 1984 SAA. The amendments exempt entities receiving a relatively small amount of federal funds, enacts guidelines to ensure that high-risk programs are subject to audit, and simplifies reporting requirements.
In June 1997 the OMB revised and renamed Circular A-133 to implement the SAA's amendments and to extend the circular's coverage to state and local governments, Indian tribal governments, and nonprofit organizations, as well as to rescind OMB Circular A-128. In accordance with the provisions for a periodic review of the audit threshold, a 2003 amendment to A-133 increases the audit threshold to an aggregate federal-funds expenditure of $500,000.
DISADVANTAGE OF SINGLE AUDIT APPROACH
A disadvantage of the single audit approach is that some granting agencies do not receive as much information about their grant programs as when separate grant audits are performed. As a result, some granting agencies require audit work that goes beyond the single audit requirement; the granting agencies, however, must provide additional resources to fund the audit costs.
Studies of single audits began when the Government Accountability Office (which was known as the General Accounting Office until July 2004) reports criticized the quality of audits of governmental entities. Research has found that audit quality suffers when the auditor has an incentive to limit the amount of audit testing to ensure that the engagement remains profitable.
Accountability of the nonprofit organizations receiving federal financial assistance is a concern in light of well-publicized financial scandals, revelations of excessive compensation, and concerns over unethical behavior. A review of single audits found compliance to be quite high for nonprofits receiving substantial federal funding. Nevertheless, smaller nonprofits and those new to federal program assistance and those organizations with prior single audit findings had a significantly higher rate of adverse audit findings.
see also Auditing
Brown, C. D., and Raghunandan, K. (1995). Audit quality in audits of federal programs by nonfederal auditors. Accounting Horizons, 9, 1–10.
Copley, P., and Doucet, M. (1993). Auditor tenure, fixed fee contracts and the supply of substandard single audits. Public Budgeting and Finance, 13 (1), 23–35.
Dyson, Robert A. (1997, January). The revised OMB Circular A-133 and the Single Audit Act Amendments. The CPA Journal, pp. 46–52.
Keating, Elizabeth K., Fischer, Mary, Gordon, Teresa P., and Greenlee, Janet (2005). The Single Audit Act: How compliant are nonprofit organizations? Journal of Budgeting, Accounting and Financial Management, 17 (3), 285–309.
Office of Management and Budget. (2003, June 27). Audits of states, local governments, and non-profits organizations. Retrieved March 2, 2006, from http://www.whitehouse.gov/omb/circulars/a133/a133.html
Single Audit Act Amendments of 1996 (Public Law 104-156). Retrieved March 2, 2006, from http://www.ignet.gov/single/saamend.html
U.S. General Accounting Office. (1986). CPA audit quality: Many governmental audits do not comply with professional standards (AFMD 86-20). Washington, DC: Author.
U.S. General Accounting Office. (2000). Single audit—Update on the implementation of the Single Audit Act Amendments of 1996 (AIMD 00-293). Washington, DC: Author.
Mary L. Fischer