In our last article I looked at how the Federal Agencies are keeping score on the effectiveness of the new grant regulations implementation (aka the Uniform Guidance or “Super-Circular”) for administrative metrics Federal Grant Management.
But there is more…
Federal Agencies will also be judged on a successful implementation by the audit results.
We continued digging through the massive piles of documents surrounding the new grant regulations and here is what we discovered about the audit requirement Federal Grant Management…
Just a sec…before we go any further, would you like our Free Report: “What To Expect When You Are Expecting an Audit” If so, Click Here
It’s a great guide full of tips and success secrets for surviving the Single Audit Act blues.
Okay, back to audit metrics…
There are 5 key audit metrics that Federal agencies will be use in determining if the implementation of the new grant regulations was a big win or total failure Federal Grant Management.
5 Key Audit Metrics
I wanted to share some insights with you into the reasons behind the metrics and what this could mean for you as an award recipient.
#1 Has the Number of “Problem Children” Gone Down?
The first of the audit metrics is “Number of Modified Opinions for Higher Risk Major Programs”
This metric is about decreasing the number of high risk auditees with modified opinions. In other words, has the award recipient had issues that auditors identified in their audit reports such as findings, and significant deficiencies?
Wondering what make an auditee high-risk? When an award recipient has a high risk of not complying with federal laws and regulation, for example, they have had numerous audit findings, often spanning multiple years; they will likely be classified as high-risk auditee.
Future Prediction: Award recipients with continued audit problems will see increased difficulty in receiving Federal funds. This will show up both at the front end through the new risk assessment prior to awarding funds, and at the backend, with more rigorous efforts to reduce high-risk program with modified opinions.
#2 Have Internal Controls Become A Higher Priority?
The next of the audit metrics is the “Number of Audit Findings of Material Weaknesses in Internal Controls for Higher Risk Major Programs”
This metric is more than just the number of material weaknesses at high risk programs. At the core of this metric is the vastly increased responsibility of all people working at an organization to be knowledgeable about and support sound internal controls.
At the heart of this metric is the focus by OMB and COFAR on strengthening internal controls by putting more and more responsibility on the award recipients to have good systems in place, so that less work is required for monitoring by Federal agencies and auditors.
Future Predictions: Organizations that have well-trained staff, and support strong internal controls will have little to worry about, but unfortunately at many organizations, internal controls are viewed as a “Finance” thing. The concept of strong internal controls is often not in the consciousness of the rest of the organization. I expect a steep and painful learning curve as organizations are surprised by this new focus and wonder why what they did in the past is no longer “good enough.”
#3 How Often Do The Same Type of Audit Findings Repeat?
The third audit metric is the “Number of Repeat Findings for Higher Risk Major Programs”
In this case, repetition is not your friend. Instead the Federal agencies will use new data analysis tools to track when award recipients are having repeat findings. This metric speaks to the goal of stronger audit follow-up and increased accountability of the award recipient to fix their issues.
Future Prediction: Like the first metric on high risk programs, this metric will (at long last) drive more accountability on the grantees to spend taxpayer dollars in compliance with the terms and conditions of their award. Award recipients that don’t “clean up their act” will experience increased difficulty getting new grants and cooperative agreements.
#4 Did the Number of Major Programs Selected For Audit Go Down?
Then the Federal agencies will be scored on the “Number of Major Programs selected for audit”
This metric has to do with focusing audit resources based on risk by raising the single audit threshold to $750K. Their goal is to spend most of the audit and agency resources on auditees with material weaknesses, not monitoring organizations that are doing everything right.
Future Prediction: The number of major programs selected for audit will go down due to the increased threshold of $750,000 to be subject to the Single Audit Act. This should reduce administrative burden for smaller grant recipients, Federal agencies and auditors.
#5 Did the Number of Audit Objectives in the Compliance Supplement Go Down?
Finally, the audit metrics look at the “Number of Audit Objectives in the Compliance Supplement”
This metric is really about cleaning up the guidance for auditors in the new Compliance Supplement. (Expected release in April 2015)
The Federal government is hoping all the hard work of COFAR, and concerned parties will result in a streamlined number of audit objectives.
This metric will judged (in part) on the feedback from auditors on whether or not their scope of work was actually decreased.
Future Prediction: Auditors should see the number of audit objectives decrease though some of this will be offset with the effort of assessing and implementing the new Compliance Supplement. The jury is out on how much time will be saved in the initial years, but the push to streamline, and make award recipients put a higher priority on internal controls should have favorable results for auditors and taxpayers.
- Want a Free infographic on the new uniform guidance? Click here to get your copy.
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Author:
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.