September 2, 2009 – Earlier this year, the U.S. Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA).  This act (also known as the Recovery Act) was designed to provide economic stimulus in a number of fashions.  As part of ARRA, the federal government has been and will continue funneling billions of dollars to state and local governments.  A significant portion of these ARRA funds may ultimately be distributed to subrecipients, including other governmental and not-for-profit organizations.  Most ARRA funds will be subject to Single Audit by a recipient’s external auditor.

Both the presidential administration and Congress have prescribed these ARRA funds are subject to an unprecedented level of oversight and transparency.  The details of these oversight processes are still being developed, but it is now clear that external auditors will play a significant role in oversight through the single audit process.

The 2009 Office of Management and Budget (OMB) Circular A-133 Compliance Supplement (Supplement), Appendix 7, provided some general guidance on audits of ARRA funds.  This guidance was based on information initially available, but a great deal has changed since that time.  As a result, the OMB has issued 2009 OMB Circular A-133 Compliance Supplement Addendum #1 (Amended Supplement) to provide supplemental guidance to auditors of recipients and subrecipients of ARRA funds.  This addendum is effective for Single Audits performed for fiscal years ending on or after June 30, 2009.  The full text of the Addendum can be downloaded from the following link:

http://www.whitehouse.gov/omb/assets/a133_compliance/arra_addendum_1.pdf

Below is a summary of the relevant guidance in the Amended Supplement:

Cross-Cutting Compliance Requirements for ARRA Funds

ARRA has imposed cross-cutting compliance requirements for all ARRA funds in addition to those outlined in the Supplement.  A summary of those requirements follows:

• Activities allowed and not allowed – No funds appropriated or otherwise made available in ARRA may be used by any State or local government; or by any private entity (including nonprofit organizations), for any casino or other gambling establishment, aquarium, zoo, golf course or swimming pool
• The Davis-Bacon Act of 1931 (prevailing wage requirement) – Expanded to apply to projects or activities funded by ARRA, where applicable
• Procurement and suspension and debarment – ARRA prohibits the use of ARRA funds for a project for the construction, alteration, maintenance or repair of a public building or work unless all of the iron, steel and manufactured goods used in the project are produced in the United States.  This has been commonly referred to as the “Buy American” provision.  This requirement may be waived under specific circumstances.  A contract provision regarding compliance with the “Buy American” provision is required in all awards for construction, alteration, maintenance or repair of a public building or public work
• Reporting – The required ARRA reports discussed below must be tested
• Subrecipient monitoring – Pass-through entity is responsible to identify to first-tier subrecipients the requirement to register in the Central Contractor Registration, including obtaining a DUNS number, and to keep that information current
• Special tests and provisions
  1. Separate accountability for ARRA funding in the accounting records
  2. Identification and presentation of ARRA awards separately on the Schedule of Expenditures of Federal Awards (SEFA) and Data Collection Form (DCF)
  3. Communication to subrecipients of ARRA award information, including the federal award number, Catalog of Federal Domestic Assistance (CFDA) number and amount of ARRA funds, and that subrecipients are required to provide appropriate identification of such in their SEFA and DCF

CFDA Numbers

Some ARRA funds are being expended under existing CFDA numbers, while other ARRA funds are being expended under brand new CFDA numbers.  Recipients of ARRA funds are required to be able to distinguish ARRA funds from non-ARRA funds.  To facilitate this, ARRA-related grant agreements issued to direct recipients and first-tier subrecipients are required to clearly present both the fact that the grant includes ARRA money and the CFDA number of the program to which the ARRA funds relate.

Clusters of Programs

As part of the Amended Supplement, the OMB has provided an updated listing of clustered federal programs for Single Audit purposes.

Reporting

Starting with the quarter ended September 30, 2009, recipients of ARRA funds are required to provide statutory reports about the use of ARRA funds within 10 days of the end of each calendar quarter.  The first of these reports will be due to the federal awarding agency by October 10, 2009.  For audit periods in which these reports are due, the reports will be subject to testing of the reporting compliance requirement.  Detailed reporting instructions are scheduled to be available at www.FederalReporting.gov by September 30, 2009.

SEFA and DCF

ARRA funds that have been expended during the reporting period must be presented separately on both the SEFA and the DCF.  The name of each federal program with expended ARRA funds should be presented on two separate lines in the SEFA and DCF and the ARRA funds should be identified with a prefix of ARRA as illustrated below.

Major Program Determination for External Auditors

The methodology used to identify Type A and Type B programs is unchanged based on the ARRA or the amended guidance.  However, the determination of what constitutes a high-risk Type A program has changed.  Any federal award that exceeds the Type A threshold and contains any amount of ARRA expenditures, even if inconsequential, is automatically a high-risk Type A program.  Any cluster exceeding the Type A threshold to which a federal program with a new ARRA CFDA number has been added should be considered a new program and would automatically be a high-risk Type A program.

At this time, the existence of ARRA funds in a Type B program does not automatically result in the program being a high-risk Type B program for major program determination purposes.

Student Financial Assistance (SFA) Cluster

A portion of the ARRA funding is being used by the U.S. Department of Education to provide supplemental funds for the Federal Pell Grant (Pell) and Federal Work Study (FWS) programs.  ARRA funds disbursed under these programs are mixed with non-ARRA funds.  As a result, it is not transparent to the college or university which portions of these programs are funded by ARRA  or non-ARRA funds.  Therefore, the government has waived the requirement to distinguish ARRA funds in the SEFA and DCF related to the Pell and FWS programs.  In addition, the provision that requires automatic high-risk Type A classification of programs/clusters including ARRA funds does not apply to the SFA cluster.

Other Federal Programs

Changes related to program-specific ARRA requirements have been made for a number of federal programs.  Additionally, program-specific compliance requirements have been added for a number of new programs not previously included in Part 4 of the Supplement.

Additional Amendments to the Supplement

OMB anticipates issuing additional amendments to the Supplement over the next several months as implementing guidance related to ARRA funds is developed.  These additional amendments will be effective at varying dates over the period encompassed by one Single Audit.  This will make compliance and audit testing of programs funded in whole, or in part, by ARRA monies very challenging for the foreseeable future.

Other Observations

In a conference call June 25, 2009, members of the Federal Office of the Inspector General (OIG) community provided some additional insight into other matters related to Single Audits that have arisen as a result of ARRA.  These observations included the following:

• Requests for extensions of Single Audit reporting packages will be difficult, if not impossible, to get approved and normally should not be requested.  For example, the U.S. Department of Health and Human Services (HHS) and Housing and Urban Development (HUD) now have a blanket policy that no extension will be granted in any circumstance
• There is active discussion among regulators and lawmakers to reduce the amount of time a recipient has to file its completed Single Audit to something less than the current nine-month deadline

The rules governing compliance with handling ARRA funds are developing and changing quickly.  Please contact your BKD advisor for further developments.