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Improving Single Audits to Protect Taxpayers

2008 Federal Financial Management Conference

Mary M. Foelster, CPAAmerican Institute of CPAs

March 11, 2008

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What I Will Cover

AICPA Viewpoints Expressed in Senate Testimony

AICPA Initiatives in Response to PCIE Study

Governmental Audit Quality Center Update and Other AICPA Resources

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AICPA Viewpoints Expressed in Senate Testimony

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AICPA Viewpoint

Single audits are important in helping safeguard taxpayer dollars

Poorly performed audits are always unacceptable

AICPA will continue its ongoing efforts to enhance the quality of governmental audits

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AICPA Viewpoint

The profession has taken many steps since the reviewed audits took place, including the establishment of its Governmental Audit Quality Center

Significant improvement in the quality of governmental audits will only occur when all the key single audit stakeholder groups—the auditing profession, the procurers of single audit services, and the federal agencies—are involved in the solution

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AICPA Initiatives in Response to PCIE Study

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AICPA Task Forces Seven task forces to examine the study's detailed

findings and recommendations for the AICPA as follows:

• Sampling/Materiality Issues In A Single Audit Environment • Internal Control And Compliance Responsibilities In A Single Audit

Environment • Schedule Of Expenditures Federal Awards Reporting Issues • Reporting Audit Findings In A Single Audit• Single Audit Training Needs And Continuing Professional Education

Evaluation• Practice Monitoring In A Single Audit Environment• Compliance Auditing Considerations In Audits Of Governmental Entities

And Recipients Of Governmental Financial Assistance

Will be interacting with related federal Task Forces

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Sampling/Materiality Issues in a Single Audit

Areas of focus:• Provide clarifying guidance for implementing SAS No. 111

revisions in the context of single audits (e.g. tables or formulas)

• Explain how sample universes and transactions tested should be documented

• Provide specific guidance on, and examples of, the kind of documentation that auditors should create, as a minimum, to document risk assessments of individual federal programs

• Provide specific guidance and/or illustrative examples to properly document materiality in single audits

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Sampling/Materiality Issues in a Single Audit Task Force Activities:

• Assessing current sampling guidance to the single audit environment• Controls testing

• Compliance testing

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Internal Control & Compliance Responsibilities in a Single Audit Areas of Focus:

• Better describe the minimum audit documentation required to document the auditor’s understanding of, and testing of, internal controls related to compliance by developing examples of such documentation

• Assist auditors in documenting their performance of compliance testing for all applicable compliance requirements identified in the OMB Compliance Supplement, unless the auditor concludes that a compliance requirement is not direct and material to his or her specific client situation

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Internal Control & Compliance Responsibilities in a Single Audit

Task Force Activities:• Development of practice aids to assist

auditors in applying COSO to single audits and documenting compliance testing

• Development of practice aids to assist auditors in making and documenting risk assessments at the appropriate level

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Schedule of Expenditures of Federal Awards (SEFA) Reporting Issues Areas of Focus:

• Assist practitioners in understanding procedures an auditor should perform to provide in-relation-to reporting on the SEFA

• Emphasize the importance of reviewing the SEFA to determine that its content and presentation meets the minimum requirements set forth in A-133 §.310(b)

• Emphasize that correct SEFA content (including clusters) & CFDA numbers are critical for properly executing a single audit

• Emphasize that a lack of or ineffective internal controls over SEFA preparation may be a significant deficiency, and potentially a material weakness

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Schedule of Expenditures of Federal Awards Reporting Issues

Task Force Activities:• Development of improved guidance for

providing the in-relation-to opinion on the SEFA

• Development of a disclosure checklist practice aid to highlight the minimum requirements set forth in A-133 §.310(b)

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Reporting Audit Findings in a Single Audit Areas of Focus:

• Clarify when audit findings must be reported

• Clarify “likely questioned costs,” including example approaches for calculating them

• Develop illustrative examples of properly presented audit findings

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Reporting Audit Findings in a Single Audit Task Force Activities:

• Development of a practice aid to help auditors develop and evaluate findings for single audits and Yellow Book financial statement audits

• Development of illustrative audit finding samples using the new worksheet

• Clarifying updates to AICPA Audit Guide, Government Auditing Standards and Circular A-133 Audits

• Development of guidance for determining and documenting “likely questioned costs”

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Single Audit Training & CPE Evaluation Areas of Focus:

• Considering whether there are best practices when it comes to training for auditors performing single audits

• Evaluate the AICPA current course offerings that relate to single audits to determine the following:

• Appropriateness (in light of the study results)

• Effectiveness and whether they address quality issues cited in the PCIE study

• Identification of potential gaps in the AICPA offerings based on study results and training “best practices” determined by the task force

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Single Audit Training & CPE Evaluation

Task Force Activities:• Drafting a proposed best practice single audit training

curriculum that is structured for 3 staff levels (basic, intermediate, advanced) that includes specific topics and suggestions for annual updates

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Other AICPA Task Forces

Peer review SAS No. 74

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Governmental Audit Quality Center Update and Other AICPA Assistance

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Council authorized in October 2003 BOD approved membership requirements in

July 2004 Center launched at end of September 2004 February 2008 – approximately 975 member

firms

GAQC Milestones:

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Who Should Consider Joining

Audit firms that perform not-for-profit organization or governmental audits (under the Yellow Book and/or single audit rules)

Audit firms that perform audits under federal audit guides (for example, HUD, Department of Education, etc.)

Peer review firms that review these audits

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AICPA Governmental Audit Quality Center

AICPA helps firms achieve the highest standards in performing quality governmental audits

Firm demonstrates its commitment to governmental audit quality (must adhere to membership requirements—see the GAQC Web site at: http://gaqc.aicpa.org/Memberships/ for additional questions and answers about the requirements)

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GAQC Members By Firm Size (# of CPAs)

364%

596%

37139%

49551%

> 100 CPAs

50 to 99 CPAs

10 to 49 CPAs

< 10 CPAs

51% of members have less than 10 CPAS

39% have between 10 to 49 CPAs

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Other Interesting Facts

42% of member firms perform 1-10 audits under the Yellow Book and another 25% perform 11-25

Member firms cover over 83% of the federal expenditures covered in single audits performed by CPA firms

Member firms audit almost 40% of the total number of single audits performed by CPA firms

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GAQC Web site

www.aicpa.org/GAQC

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GAQC Member Value

Member CommunicationsE-AlertsUpdate NewslettersConference CallsWebcasts

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GAQC Goals

Improve quality statistics Represent members that practice in the

governmental audit quality arena, particularly as it relates to issuance of federal quality results

Grow membership and single audit coverage Regulator and stakeholder outreach and

education

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AICPA Audit Resources AICPA Conferences

• NPO Conference – June

• Government Accounting and Auditing Update Conference – August (east) and September (west)

• Government and NPO Training Program - October

• National Healthcare Industry Conference - November Archived AICPA Webcasts

• NPO Strategic Briefing

• SLG Strategic Briefing AICPA Infobytes Other CPE courses, including State Society courses

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AICPA Audit Resources A&A Guides

• GAS/A133 • SLG • NPO• HC

Audit Risk Alerts• GAS/A133• SLG • NPO • HC

Practice Aid, Auditing Recipients of Federal Awards: Practical Guidance for Applying OMB Circular A-133 (product number 006621)

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GAQC Team

General Inquiries gaqc@aicpa.org Mary Foelster, Director

• 202-434-9259 or mfoelster@aicpa.org

Laura Hyland, Technical Manager• 202-434-9233 or lhyland@aicpa.org

Rafael Roman, Technical Manager• 202-434-9272 or rroman@aicpa.org

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Questions ?????