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Christopher N. Herr, CPA | Maillie LLP

As the June 30, 2016, and year-end audits draw near, a significant consideration for this year’s school district audits is going to be planning for the single audit under the new Uniform Grant Guidance. New single-audit requirements will be mandatory for all audits with year-ends on or after Dec. 25, 2015. For school districts, the first period to be audited under the new rules will be those with years ending June 30, 2016.

Prior to the new guidance, an entity with more than $500,000 of federal expenditures would be required to have a single audit performed. Under the new guidance, that threshold has been increased to $750,000. Since many school districts have federal expenditures in excess of $750,000, this likely won’t have much of an impact.

Of more consequence is the change in coverage that’s required. Under the old rules, if the auditee was determined to be a low-risk entity, it was required that the major programs selected to be audited for the year have total expenditures in excess of 25 percent of the total federal awards expended for the year. If the auditee was determined to be a high-risk entity, that coverage requirement increased to 50 percent. Under the new grant guidance, those thresholds have decreased to 20 percent and 40 percent, respectively. While it may not seem significant, I’ve certainly had more than a few audits where, had I been conducting the audit under the new rules one or two fewer programs would have been audited.

What Constitutes a Major Program?

• Larger federal programs, labeled “type A programs,” now have a threshold of $750,000, which has been increased from $300,000.
  • Any type A programs determined to be high risk must be audited as part of the single audit. The criteria for determining whether a type A program is high or low risk has undergone significant revisions, now placing less emphasis on auditor judgment and more focus on fact-based criteria and higher risk audit findings.
• The assessment of smaller federal programs, labeled “type B programs,” has been simplified under the new guidance. The auditor is only required to perform risk assessments on type B programs that exceed 25 percent of the type A threshold. So for an entity using the minimum type A threshold of $750,000, only type B programs with expenditures over $187,500 will have to be risk-assessed, an increase from the old type B risk assessment threshold of $100,000.
• Also in determining high-risk type B programs, the new guidance eliminates the old process of selecting either option 1 or option 2 to determine how many type B programs need to be risk-assessed. Instead a single methodology is used, in which the auditor is only required to identify high-risk type B programs to the extent that the number of identified high-risk B programs is at least 25 percent of the number of low-risk type A programs.
• Once the required number of high-risk type B programs are identified, no further risk assessment of type B programs is required.

Once you’ve made the determination as to which programs will be audited as part of your single audit, there will be a number of additional considerations, especially during the transition period to the new Uniform Grant Guidance. All new federal awards, as well as additional funding to existing awards, after Dec. 26, 2014, will be required to follow the new administrative requirements and cost principles. Grants awarded prior to that will still follow the requirements in the pre-Uniform Guidance OMB Circulars. To understand the impact, consider a school district with a year-end of June 30, 2016, and let’s assume Title I was selected as a major program. Let’s also assume that during the year ending June 30, 2016, the school district spent money from a Title I grant awarded July 1, 2014, and from a second grant awarded July 1, 2015. In testing compliance with the Allowable Costs/Cost Principles, the auditor would determine the sample size of expenditure transactions for testing, select their sample, and then for each individual expenditure determine if it was made from the July 1, 2014, grant or the July 1, 2015, grant.

• Expenditures from the July 1, 2014, grant would be subject to the pre-Uniform Guidance OMB Circulars, and compliance would be determined based on the requirements therein.
• Expenditures from the July 1, 2015, grant would be subject to the criteria laid out in the Uniform Grant Guidance.

Until all the funding from grants awarded before Dec. 26, 2014, is spent, you will be required to consider whether activities under the programs are subject to the pre-Uniform Guidance OMB Circulars or the new Uniform Grant Guidance and audit accordingly.

These are only a few of the changes to consider in the overall planning process. We haven’t even touched on the numerous changes in the individual compliance requirements that will have to be considered when auditing a program under the new guidance, such as the changes to cost principles and procurement requirements.

As a result, substantial preparation will have to be done to conduct single audits in accordance with the new requirements.

Hear more from Christopher Herr on the single-audit process, recent changes, and federal awards at this year’s PICPA School District Conference on June 2.