Question

A local government has four federal programs. Expenditures during the year ended June 30, 2020, are below:

HHS1; new this year and never audited                                   $ 880,000

HHS2; audited last year, no major findings                                        770,000

Department of Transportation 65,000

Department of Agriculture                          485,000

Total Expenditure of Federal Funds                                                    $2,200,000

Which Programs would the auditor be required to audit, assuming that all the programs are low risk, explain your reasoning and show your computations?

Answer 1

Any non-federal entity that expends more than $750,000 in federal award funds during its fiscal year is required to obtain a Single Audit. In this given case, the auditee is a high risk assesse and hence needs atleast 40% audit coverage. The Risk categorization of programs is as below:
Program	Expenditure	A/B	Risk	Explanation
HHS1; new this year and never audited	$880,000.00	A	High	As >750,000 it will fall in class A
HHS2; audited last year, no major findings	$770,000.00	A	Low	As >750,000 it will fall in class A But as it is previously audited with now major finding, it will be Low risk ares
Department of Transportation	$65,000.00	B	High	As < 750,000 it will be classified as class B
Department of Agriculture	$485,000.00	B	High	As < 750,000 it will be classified as class B
Total Expenditure of Federal Funds	$2,200,000.00
40% of 2200000 = 880,000
Programs to be audited:
Program	Expenditure	Explanation
HHS1; new this year and never audited	$880,000.00	As it is high risk Class A federal expenditure, also covering the 40% of the total expenditure, it will be suficient to audit only Program HHS1.