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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: June 27, 2003

SUBJECT: Office of Management and Budget Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations

SOURCE: Federal Register, June 27, 2003, Vol. 68, No. 124, page 38401

AGENCIES: Office of Management and Budget (OMB)

ACTION: Final Revision

SYNOPSIS: OMB is issuing final revisions to Circular No. A-133 to: (1) increase the threshold for audit from $300,000 to $500,000; (2) increase the threshold for cognizant agency for audit from $25 million to $50 million; and (3) make related technical changes to facilitate the determination of a cognizant agency for audit and provide for federal agency reassignment of oversight agency for audit.

EDITOR'S NOTE: OMB Circular No. A-133 is available at http://www.omb.gov, then click on "Grants Management," then click on "Circulars."

For more on the proposed revision to OMB Circular A-133, see the August 12, 2002, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget; Grants Streamlining Activities Under the Federal Financial Assistance Management Improvement Act of 1999 (Public Law 106-107)."

For more on other efforts to implement the Federal Financial Assistance Management Improvement Act, see today’s FEDERAL CONTRACTS DISPATCH "Office of Management and Budget; Use of a Universal Identifier by Grant Applicants," and the June 23, 2003, FEDERAL CONTRACTS DISPATCHOffice of Management and Budget; Announcements of Grants and Cooperative Agreements.

EFFECTIVE DATE: The final revisions are effective for fiscal years ending after December 31, 2003. Early implementation will not be permitted except for the amended definition of "oversight agency for audit" in Section __.105. The amended definition is effective July 28, 2003.

FOR FURTHER INFORMATION CONTACT: Recipients should contact their cognizant agency for audit or oversight agency for audit or federal awarding agency, as appropriate. Subrecipients should contact their pass-through entity. Federal agencies should contact Terrill W. Ramsey, Office of Federal Financial Management, Office of Management and Budget, 202-395-3993.

SUPPLEMENTAL INFORMATION: On August 12, 2002, OMB published five actions related to the implementation of the Federal Financial Assistance Management Improvement Act of 1999 (Public Law 106-107). One of the actions was a proposal to make three changes to OMB Circular No. A-133:

  1. Increase the audit threshold from $300,000 to $500,000. There were 34,000 non-federal entities (states, local governments, and non-profit organizations) that expended $300,000 or more in a year in federal awards, and all these were required to have an audit conducted in accordance with A-133. By increasing the threshold from $300,000 to $500,000, it was expected that the number of entities to be audited would be reduced by 6,000 to 28,000, while exempting from audit less than 0.5% of federal dollars expended by entities currently filing A-133 audits. The change would be made in __.200(a), __.200(b); __.200(d); __.230(b)(2); and __.400(d)(4). (EDITOR'S NOTE: A-133 is in the "common rule" format, which allows each agency to insert the A-133 text into its regulations verbatim merely by adding its appropriate Code of Federal Regulations (CFR) section number. For example, the National Aeronautics and Space Administration incorporated the text of ___.400, Responsibilities, into its regulations in Title 14 of the CFR (14 CFR) Part 1260 -- Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations, as 14 CFR 1260.400, and 14 CFR Part 1273 -- Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, as 14 CFR 1273.400. The Department of State did the same by incorporating the text of ___.400 into its regulations as 22 CFR Part 135.400 and 22 CFR 145.400 in exactly the same manner.)

  2. Increase the threshold for cognizant agency for audit from $25,000,000 to $50,000,000. Approximately 1,000 of 34,000 recipients (non-federal entities that expend federal awards received directly from a federal awarding agency) which expend more than $25,000,000 a year in federal awards had a federal agency designated as their "cognizant agency for audit." All other non-federal entities had a federal agency as their "oversight agency for audit." The basic difference between the two is that a "cognizant agency for audit" is required to perform certain oversight functions listed in A-133, and an "oversight agency for audit" is given the option to assume these responsibilities -- the only responsibility the oversight agency for audit is required to perform is to provide technical advice to auditors and auditees upon request (paragraphs ___.400(a) and ___.400(b) describe "cognizant agency for audit" and "oversight agency for audit", respectively). By increasing this threshold to $50,000,000, it was expected that the number of non-federal entities with a cognizant agency for audit assignments would be reduced to approximately 500. This change would allow the federal agencies to provide more focused audit oversight where there is the greatest risk in terms of federal awards expended but still provide each non-federal entity with an assigned oversight agency for audit from which to request technical advice. This change would be made in the first sentence of __.400(a).

  3. Change the base year for cognizant agency for audit determination from one to two years before the start of the five year audit cognizance period. The cognizant agency for audit is determined by which federal agency provides the predominant amount of direct federal awards funding to a recipient in the base year. For example, cognizant agency for audit determinations for the years 2001 through 2005 were based upon which federal agency provided the predominant amount of federal awards expended in the base years ending in 2000. Since A-133 reports for the non-federal entities' fiscal years ending December 31, 2000, were not required to be filed until September 30, 2001, it was not possible to produce a cognizant agency for audit assignment list at the start of 2001. The reason for the change was to provide sufficient time to make cognizant agency for audit determinations before the start of the audit cognizance period.

    Under the proposed change, 2004 would be the base year for determining the cognizant agency for audit for 2006 through 2010. All fiscal year 2004 A-133 reports are due to the Federal Audit Clearinghouse (FAC) on or before September 30, 2005, so the change would provide sufficient time for federal agencies to use the FAC database to produce a cognizant agency for audit list for the 2006 through 2010 audit cognizance period at the start of 2006. This change would be made in the third, fourth, and fifth sentences of __.400(a).

Forty-three respondents submitted comments on this proposed action. After reviewing the comments, OMB has decided to adopt the proposed revisions as final with the addition of the following to the end of the definition of “oversight agency for audit” in Section __.105: “A federal agency with oversight for an auditee may reassign oversight to another federal agency which provides substantial funding and agrees to be the oversight agency for audit. Within 30 days after any reassignment, both the old and the new oversight agency for audit shall notify the auditee, and, if known, the auditor of the reassignment.”

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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