This guide provides a thorough overview of Circular A-133, offering standards for auditing states, local governments, and non-profit organizations that expend Federal awards. This document is designed to ensure consistency and uniformity among Federal agencies in these audits.
Understanding Circular A-133
Circular A-133, issued under the authority of sections 503, 1111, and 7501 et seq. of title 31, United States Code, and Executive Orders 8248 and 11541, sets forth the standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards. It rescinds Circular A-128 and supersedes the prior Circular A-133.
Federal agencies must apply the standards outlined in this Circular to non-Federal entities, including recipients and subrecipients of Federal awards. This guide does not apply to non-U.S. based entities. Key terms and definitions are provided in §___.105 of the Attachment to this Circular.
Key Definitions in A-133 Audits
Understanding the following definitions is crucial for navigating the complexities of A-133 audits:
- Auditee: Any non-Federal entity that expends Federal awards which must be audited under this part.
- Auditor: A public accountant or a Federal, State, or local government audit organization meeting generally accepted government auditing standards (GAGAS). This excludes internal auditors of non-profit organizations.
- Audit Finding: Deficiencies that the auditor is required to report in the schedule of findings and questioned costs, according to §___.510(a).
- CFDA Number: The number assigned to a Federal program in the Catalog of Federal Domestic Assistance.
- Cluster of Programs: A grouping of closely related programs sharing common compliance requirements. This includes research and development (R&D), student financial aid (SFA), and other clusters as defined by OMB.
- Cognizant Agency for Audit: The Federal agency designated to carry out the responsibilities described in §___.400(a).
- Compliance Supplement: Refers to the Circular A-133 Compliance Supplement, included as Appendix B to Circular A-133, which provides guidance on compliance requirements.
- Corrective Action: Action taken by the auditee to correct deficiencies, produce improvements, or demonstrate that audit findings are invalid.
- Federal Agency: As defined in Section 551(1) of title 5, United States Code.
- Federal Award: Federal financial assistance and cost-reimbursement contracts received by non-Federal entities, excluding procurement contracts.
- Federal Awarding Agency: The Federal agency that provides an award directly to the recipient.
- Federal Financial Assistance: Assistance in the form of grants, loans, property, cooperative agreements, and more, but excludes reimbursements for services rendered to individuals.
- Federal Program: All Federal awards to a non-Federal entity assigned a single number in the CFDA, or awards from the same agency for the same purpose.
- GAGAS: Generally accepted government auditing standards issued by the Comptroller General of the United States.
- Generally Accepted Accounting Principles: As specified in generally accepted auditing standards issued by the AICPA.
- Indian Tribe: Any recognized Indian tribe eligible for special programs and services.
- Internal Control: A process designed to provide reasonable assurance regarding the achievement of objectives related to operations, financial reporting, and compliance.
- Internal Control Over Federal Programs: A process designed to provide reasonable assurance regarding the achievement of objectives for Federal programs.
- Loan: A Federal loan or loan guarantee received or administered by a non-Federal entity.
- Local Government: Any unit of local government within a State.
- Major Program: A Federal program determined by the auditor to be a major program in accordance with §___.520 or identified as such by a Federal agency or pass-through entity per §___.215(c).
- Management Decision: The evaluation by the Federal awarding agency or pass-through entity of the audit findings and corrective action plan.
- Non-Federal Entity: A State, local government, or non-profit organization.
- Non-Profit Organization: An organization operated for public interest purposes, not primarily for profit.
- OMB: The Executive Office of the President, Office of Management and Budget.
- Oversight Agency for Audit: The Federal awarding agency providing the predominant amount of direct funding to a recipient without a cognizant agency for audit.
- Pass-Through Entity: A non-Federal entity that provides a Federal award to a subrecipient.
- Program-Specific Audit: An audit of one Federal program as provided for in §___.200(c) and §___.235.
- Questioned Cost: A cost questioned by the auditor due to a violation of laws, regulations, or lack of documentation.
- Recipient: A non-Federal entity that expends Federal awards received directly from a Federal awarding agency.
- Research and Development (R&D): Research activities and development activities performed by a non-Federal entity.
- Single Audit: An audit that includes both the entity’s financial statements and the Federal awards as described in §___.500.
- State: Any State of the United States, including territories and instrumentalities.
- Student Financial Aid (SFA): Programs of general student assistance, such as those authorized by Title IV of the Higher Education Act of 1965.
- Subrecipient: A non-Federal entity that expends Federal awards received from a pass-through entity.
- Types of Compliance Requirements: Requirements listed in the compliance supplement, such as activities allowed, allowable costs, cash management, eligibility, and reporting.
- Vendor: A dealer providing goods or services required for a Federal program.
Audit Requirements Under A-133
Non-Federal entities expending $750,000 or more in Federal awards in a year must have a single or program-specific audit conducted for that year. Entities expending less than this amount are exempt from Federal audit requirements but must have records available for review.
Single Audit vs. Program-Specific Audit
Entities expending $750,000 or more in Federal awards must have a single audit, unless they elect to have a program-specific audit. A program-specific audit may be elected when an auditee expends Federal awards under only one Federal program (excluding R&D) and the program’s laws do not require a financial statement audit.
Determining Federal Awards Expended
The determination of when an award is expended should be based on when the activity related to the award occurs, such as expenditure transactions, disbursement of funds to subrecipients, use of loan proceeds, and receipt of property.
Distinguishing Subrecipients from Vendors
An auditee may be a recipient, a subrecipient, and a vendor. Federal awards expended as a recipient or a subrecipient would be subject to audit under this part. Payments received for goods or services provided as a vendor would not be considered Federal awards.
- Subrecipient characteristics: Determining who is eligible for assistance, measuring performance against Federal program objectives, and responsibility for programmatic decision-making.
- Vendor characteristics: Providing goods or services within normal business operations, providing similar goods or services to many different purchasers, and operating in a competitive environment.
Responsibilities of Auditees
The auditee has several key responsibilities:
- Identifying Federal awards received and expended.
- Maintaining internal control over Federal programs.
- Complying with laws, regulations, and the provisions of contracts or grant agreements.
- Preparing appropriate financial statements and the schedule of expenditures of Federal awards.
- Ensuring that audits are properly performed and submitted when due.
- Following up and taking corrective action on audit findings.
Auditor Selection and Procurement
Auditees must follow procurement standards when procuring audit services, making efforts to utilize small businesses, minority-owned firms, and women’s business enterprises. The objectives and scope of the audit should be clear, and factors such as responsiveness, experience, staff qualifications, and price should be considered.
Financial Statement and Reporting Requirements
The auditee must prepare financial statements that reflect its financial position and results of operations for the fiscal year audited, as well as a schedule of expenditures of Federal awards.
The schedule should:
- List individual Federal programs by Federal agency.
- Include the name of the pass-through entity for Federal awards received as a subrecipient.
- Provide total Federal awards expended for each program and the CFDA number.
- Include notes describing the significant accounting policies used.
Audit Findings Follow-Up
The auditee is responsible for follow-up and corrective action on all audit findings, including preparing a summary schedule of prior audit findings and a corrective action plan for current year findings.
Report Submission and Retention
The audit should be completed and submitted within the earlier of 30 days after receipt of the auditor’s report(s) or nine months after the end of the audit period. Auditees must submit a data collection form and a reporting package to the Federal clearinghouse designated by OMB.
Federal Agency and Pass-Through Entity Responsibilities
Federal agencies have responsibilities such as:
- Identifying Federal awards made.
- Advising recipients of requirements.
- Ensuring timely completion and receipt of audit reports.
- Providing technical advice.
- Issuing management decisions on audit findings.
Pass-through entities have responsibilities such as:
- Identifying Federal awards made to subrecipients.
- Advising subrecipients of requirements.
- Monitoring subrecipient activities.
- Ensuring subrecipients meet audit requirements.
- Issuing management decisions on audit findings.
Management Decisions
The management decision should clearly state whether the audit finding is sustained, the reasons for the decision, and the expected auditee action. It should also describe any appeal process available to the auditee.
Auditor Responsibilities and Scope of Audit
The audit must be conducted in accordance with GAGAS and cover the entire operations of the auditee. The auditor must determine whether the financial statements are presented fairly and whether the auditee has complied with laws, regulations, and the provisions of contracts or grant agreements that may have a direct and material effect on each of its major programs.
Audit Reporting and Findings
The auditor’s report(s) should state that the audit was conducted in accordance with this part and include opinions on the financial statements and the schedule of expenditures of Federal awards, as well as reports on internal control and compliance. The auditor must also prepare a schedule of findings and questioned costs.
Major Program Determination
The auditor must use a risk-based approach to determine which Federal programs are major programs, considering current and prior audit experience, oversight by Federal agencies and pass-through entities, and the inherent risk of the Federal program.
Criteria for Federal Program Risk
The auditor’s determination should be based on an overall evaluation of the risk of noncompliance occurring, considering factors such as weaknesses in internal control, prior audit findings, oversight exercised by Federal agencies, and the inherent nature of the Federal program.
Criteria for a Low-Risk Auditee
An auditee meeting specific conditions for the preceding two years, such as having single audits performed annually, unqualified opinions on financial statements, and no material weaknesses in internal control, may qualify as a low-risk auditee and be eligible for reduced audit coverage.
Conclusion
This A-133 audit guide provides a comprehensive overview of the regulations and standards required for auditing states, local governments, and non-profit organizations expending Federal awards. Compliance with these guidelines is essential to ensure the proper management and use of Federal funds.
