John Keel, CPA What to Expect on an A-133 Audit Ellie Thedford, CGAP, Senior Auditor Parsons Townsend, CGAP, CICA, Senior Auditor Texas State Auditor’s.

John Keel, CPA

What to Expect on an A-133 AuditWhat to Expect on an A-133 Audit

Ellie Thedford, CGAP, Senior Auditor

Parsons Townsend, CGAP, CICA, Senior Auditor

Texas State Auditor’s Office

October 9, 2013

Texas Association of Student Financial Aid Administrators Fall Conference 2013

John Keel, CPA

Objectives Single Audit Overview

Initial Project Planning

Preparing for an Audit

Fieldwork

Findings and Management Responses

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SINGLE AUDIT OVERVIEW

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Single Audit Background• Established by the Single Audit Act of

1984 (amended in 1996).

• Applies to non-profit and government entities that expend $500,000 or more in federal awards annually.

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John Keel, CPA

Single Audit Background• Components of the Single Audit.

• Financial statement opinion audit.

• Report on compliance and internal control over compliance for each major program.

• Schedule of Expenditures of Federal Awards (SEFA).

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John Keel, CPA

Single Audit Background• Compliance Portion Objectives:

• Obtain understanding of internal controls over compliance for each major program, assess control risk of noncompliance, and perform tests of controls.

• Determine whether the entity complied with laws and regulations that may have a direct and material effect on each major program.

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John Keel, CPA

Single Audit Background• SEFA Objective

• Determine whether the Schedule of Expenditures of Federal Awards (SEFA) is fairly presented in relation to the entity’s financial statements as a whole.

Note: Because the SEFA serves as the primary basis for major program determination, the accuracy and completeness of the SEFA is very important to the Single Audit.

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John Keel, CPA

Single Audit in TexasFor fiscal year 2012, the State expended:

$50.2 billion in federal funds.

$4 billion in Student Financial Assistance (SFA) cluster federal funds.

The state audit covers all entities included in the State’s Comprehensive Annual Financial Report (CAFR).

Does not include community colleges or private institutions.

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Proposed Changes to the Single Audit• Consolidation of Circulars (8 into 1).

• Change in selection of Type A and Type B major program determinations.

• Reduction and consolidation of required compliance areas for testing.

• Additional findings requirements: • Repeat finding

• Sample size support for statistical samples

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John Keel, CPA

Student Financial Assistance Cluster84.007 Federal Supplementation

Educational Opportunity Grant

84.033 Federal Work Study

84.038 Federal Perkins Loans

84.063 Federal Pell Grant Program

84.268 Federal Direct Student Loans

84.379 Teacher Education Assistance for College and Higher Education Grant

84.408 Iraq and Afghanistan Service Grants

93.264 Nurse Faculty Loan Program

93.342 Health Professions Student Loans, including Primary Care Loans and Loans for Disadvantaged Students

93.364 Nursing Student Loans

93.408 ARRA- Nurse Faculty Loan Program

93.925 SDS

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Audit Time LineInitial

Planning April- May

FieldworkJune-

August

Complete Fieldwork and

ReviewAugust- October

SEFA Audit Work

November- December

Findings and Management ResponsesDecember-

January

Report February

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John Keel, CPA

INITIAL PROJECT PLANNING

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Major Program DeterminationProcess to determine which programs should be

included in annual A-133 audit.

Required to cover at least 50 percent of federal expenditures each year.

For State of Texas, the determination is done by the State Auditor Office’s contractor.

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John Keel, CPA

Major Program Coverage• To obtain sufficient audit coverage for the SFA

cluster, we must audit multiple higher education institutions each year.

• We perform limited procedures for some of the higher education institutions with lower SFA cluster expenditures each year.

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John Keel, CPA

Site Selection Considerations• SFA cluster expenditures

• Larger institutions audited annually

• Designation of tiers

• Prior audit results.

• Fraud complaints.

• Other risk notes, including other internal or external audits.

• Time since last audit.

• Southern Association of Colleges and Schools (SACS) accreditation cycle.12

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Initial Planning• Initial contact.

• Engagement letter and expectations memo.

• Scheduling on-site fieldwork.

• Control questionnaires or documents• Separate questionnaires or documents for each

compliance area.

• Information and population requests.• Multiple populations required.

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Common Planning Issues• Difficulty obtaining populations.

• No query or support provided to prove population completeness.

• Unofficial withdrawals.

• All cash draws made in year, rather than only draws on current awards.

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PREPARING FOR AN AUDIT

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Preparing for an Audit• Establish and update written policies or

procedures

• Maintain evidence of reviews or approvals

• Monitor critical activities, including student determinations and adjustments

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FIELDWORK

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Internal Controls Over Compliance

• Auditors gain an understanding of internal controls related to SFA cluster.

• Perform assessment of controls based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model.

• Test internal controls that are key to SFA processes.

• Test information technology general controls.

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John Keel, CPA

Information Technology General Controls• Information Security Policies

• User Access• Passwords.

• High-profile Roles.

• Periodic Review of User Access.

• Change Management• Authorization and Testing.

• Migration of Changes.

• Configuration and Emergency Changes.

• Operations17

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Common General Control Issues• Lack of documentation of development testing

and insufficient approval of system changes.

• User Access• More access than necessary.

• Terminated or transferred employees.

• Shared generic accounts.

• No review of user access.

• Segregation of Duties• Programmers with access to production.

• Users who can initiate, submit, and approve critical transactions.18

John Keel, CPA

Compliance Testing• Typically done on a sample basis.

• If exceptions, auditors may attempt to quantify the exceptions for the entire population.

• For some compliance areas, auditors will perform data analysis to review the entire population.

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John Keel, CPA

Audit Procedures• Office of Management and Budget Circular A-

133 Compliance Supplement• Details requirements for each federal program.

• Guides the audit procedures and requirements tested for each program.

• Catalog of Federal Domestic Assistance (CFDA) number identifies each federal program.

• 2013 Supplement was published in July 2013.

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John Keel, CPA

Compliance Sample Sizes• American Institute of Certified Public

Accountants’ (AICPA) Sample Size Guidance.

• Based on inherent risk and control risk for each compliance area.

• Sample sizes are increased when control weaknesses and/or compliance exceptions are identified.

• Sample sizes are typically 25, 40, or 60.

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John Keel, CPA

Key Compliance Requirements• 13 primary compliance requirements.

• Special Tests and Provisions.• Additional areas that can be added by the federal awarding

agency for each program or cluster.

• Limited vs. Full Scope Higher Education Institutions.

• Not all compliance areas are considered direct and material based on quantitative and/or qualitative considerations. Therefore, some compliance areas may not be included in our audit work.

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John Keel, CPA

Cash Management• Objective: Determine whether, for advance

payments, the recipient has minimized the time between transfer of funds and their disbursement.

• Test that disbursements were made within three business days of receipt of funds.

• Determine whether the higher education institution earned interest on federal funds.

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John Keel, CPA

Eligibility• Objectives:

• Determine whether eligibility determinations were made, individual participants were determined to be eligible, and only eligible individuals participated.

• Determine whether amounts provided to participants were calculated according to requirements.

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Eligibility• Student met general SFA requirements.

• Enrolled in eligible, degree seeking program.• U.S. citizen or national.• Maintained satisfactory academic progress.

• Student met program specific requirements.• For example, enrolled at least half-time for

Direct Loans.

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John Keel, CPA

Eligibility• Student had financial need.

• Cost of attendance correctly calculated, based on actual or expected enrollment.

• Correct expected family contribution.

• Awards made within annual and aggregate limits.

• Awards did not exceed student need.

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John Keel, CPA

Common Eligibility Issues• Cost of Attendance Calculations

• Errors in manual calculations or adjustments.• Institution does not have less than full-time budgets.• Institution does not budget based on actual or expected

enrollment. • Documentation of professional judgment.

• Satisfactory Academic Progress (SAP)• No documentation of appeal process.• Process to assess SAP is not consistent with policy.• Assistance awarded to students who did not maintain SAP.

• Data Analysis results• Grad students receiving subsidized loans• Incorrect awards for Pell, FSEOG, etc.

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John Keel, CPA

ReportingObjective: Determine whether required reports

include all activity, are supported by accounting records, and are fairly presented in accordance with requirements.

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John Keel, CPA

Reporting• Common Origination and Disbursement (COD)

System• Test origination and disbursement records to

determine accuracy and completeness.• Test timeliness of reporting.• Key items include disbursement date and

disbursement amount.

• Fiscal Operations Report and Application to Participate (FISAP)

• Test that FISAP amounts are accurately supported.

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John Keel, CPA

Common Reporting Issues• Pell or Direct Loan disbursement records not

submitted to the COD system in timely manner.

• Incorrect disbursement amount or date reported.

• Amounts reported on FISAP do not match supporting documentation.

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Verification• Objective: Determine whether the higher

education institution established verification policies and verified all required information for selected students.

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Verification• Review verification policies to ensure they

contain all required elements.

• Test that the higher education institution:• Verified information for selected students.

• Obtained acceptable documentation.

• Matched information to the student application.

• Submitted corrections when required.

• Adjusted awards based on corrections, if applicable.

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John Keel, CPA

Common Verification Issues• Verification policies do not meet federal

requirements.

• Incorrect verification of information due to manual verification process

• Household size• Number in college• Income tax paid

• Lack of follow-up on required corrections (new Institutional Student Information Record, award adjustments)

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John Keel, CPA

Changes in Verification• 2012-2013 U.S. Department of Education

Changes in Verification• $25 threshold for corrections

• No more 30% requirement

• Federal Register

• Limited Scope Compliance Area in Fiscal Year 2013

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John Keel, CPA

Disbursements• Objective: Determine whether disbursements to

students were made within required time frames and whether required documents and approvals were obtained before disbursing SFA funds.

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John Keel, CPA

Disbursements• Test that disbursements were not made more

than 10 days before start of semester.

• Test that all eligibility requirements were met before disbursements.

• Test that disbursement notifications for loans and certain grants were sent within the required time frames, as required.

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John Keel, CPA

Return of Title IV Funds• Objective: Determine whether the higher

education institution is making returns in the proper amount and in a timely manner and is applying the returns to federal programs as required.

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John Keel, CPA

Return of Title IV Funds• Test that return calculations or determinations

were accurate for students who withdrew, dropped out, or never began attendance.

• For students who received all Fs, determine whether returns were made, if applicable.

• Test that returns were made in a timely manner.

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John Keel, CPA

Common Return of Title IV Funds Issues• Payment period determined incorrectly.

• Insufficient process for determining whether student ever attended during a term.• All “F“ report not capturing a combination of

“Fs,” withdrawals, etc.

• Insufficient documentation of attendance

• Using wrong date for calculation

• Determinations of withdrawal date for unofficial withdrawals not done in a timely manner.

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John Keel, CPA

Enrollment Reporting• Objective: Determine whether the higher

education institution is notifying the U.S. Department of Education and the National Student Loan Data System (NSLDS) of changes in student status in a timely and accurate manner.

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John Keel, CPA

Enrollment Reporting• Test that student status changes were

accurately reported to NSLDS within the required time frames.

• Higher education institution is responsible for timeliness even if it uses the National Student Clearinghouse for submissions.

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John Keel, CPA

Common Enrollment Reporting Issues• Failure to report status changes to NSLDS.

• Incorrectly reporting graduated students as enrolled or withdrawn.

• For unofficially withdrawn students, not reporting students as withdrawn based on determined withdrawal date.

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John Keel, CPA

Institutional Eligibility• Objective: Determine whether the higher

education institution meets applicable institutional eligibility requirements.

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John Keel, CPA

Institutional Eligibility• Test that higher education institution:

• Maintained and met required ratios for correspondence courses, incarcerated students, and ability-to-benefit students.

• Did not pay commission or bonuses.

• Established reasonable SAP standards.

• Received approval for additional locations on Eligibility and Certification Approval Report (ECAR).

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John Keel, CPA

Common Institutional Eligibility Issues• Ratio calculations are not maintained, or there

is no process to calculate the ratios.

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John Keel, CPA

Other Compliance Areas• Activities Allowed or Unallowed.

• Matching, Level of Effort, Earmarking.

• Period of Availability.

• Program Income.

• Separate Funds.

• Student Loan Repayments.

• Federal Work Study.

• Written Arrangements.46

John Keel, CPA

FINDINGS AND MANAGEMENT RESPONSES

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Potential Finding Classifications• Internal Controls Over Compliance.

• Significant Deficiency.

• Material Weakness.

• Compliance.• Non-Compliance.

• Material Non-Compliance.

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John Keel, CPA

Management Responses• Written findings sent to higher education

institutions.

• Generally have 10 working days for responses.

• Responses include corrective action plan, responsible person and implementation date.

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John Keel, CPA

Report• Statewide Single Audit report.

• Separate SAO report on SFA Cluster findings.

• Fiscal year 2012 Reports:• http://www.sao.state.tx.us/reports/main/13-322.

pdf

• http://www.sao.state.tx.us/reports/main/13-019.pdf

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John Keel, CPA

Available Resources• OMB Circular A-133

• 2013 Compliance Supplement, Parts 3 and 5• http://www.whitehouse.gov/omb/circulars/a133_c

ompliance_supplement_2013

• Catalog of Federal Domestic Assistance• https://www.cfda.gov

• Code of Federal Regulations• Title 34- Education• Title 42- Public Health

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John Keel, CPA

Questions?

John Keel, CPA

Contact InformationEllie Thedford

(512) 936-9305

[email protected]

Parsons Townsend

(512) 936-9734

[email protected]