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

A. Does the Single Audit Act standard apply here? Why or why not?

B.   What is the Single Audit Act and how does it differ from GAGAS?

C.       Which programs would the auditor be required to audit, explain your reasoning and show your computations.

D         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

The Single Audit Act is an independent examination of an entity which expends an amount of $750,000 or more of the federal assistance ( commonly called as federal grants, funds, awards) which it received for its operations, with the goal to provide reasonable assurance to the US federal government in respect of the management and use of such funds by recipients like states, universities, non-profit organizations etc. It is conducted by an independent Certified Public Accountant (CPA).

Considering the above, Single Audit Act standard will be applicable because the total amount of federal assistance which has been incurred as expenditure is more than $750,000.

To determine which federal programs are to be examined, first of all, the auditor should determine on the basis of a specific criteria whether the recipient is a high risk or low risk audited. High risk audited implies higher risk of not complying with federal laws and regulations and vice-versa. Federal programs are categorised into type A and type B programs. During an audit period, if the total federal awards expended are more than or equal to $750,000 but less than $25 million, in such a case, any program which expends more than $750,000 is type A. Taking into consideration the above issue, HHS1 and HHS2 are type A whereas the other two are type B programs. While assessing the risk of HHS1 and HHS2, it can be said that there is lesser risk in HHS2 because it has been audited before and also there had not been any major audit findings, whereas HHS1 program is new and had not been audited before. Therefore, the level of risk is higher. As far as the type B programs are concerned, professional judgement and criteria established in Uniform guidance should be used by the auditor for assessing risk. The department of agriculture is a bigger type B program as compared to the department of transportation due to quantum of amount involved. Thus, the auditor should audit the programs HHS1 and department of agriculture.

If all the programs are low risky, in that case, professional judgement should be used by the auditor to decide the programs to be audited but it should be remembered that the majormajor program expenditure as a percentage of total awards expenditure must be at least 20 percent. If the identified major program does not fulfill the required coverage percentage, then the auditor must select additional programs to audit until and unless the required coverage percentage is fulfilled.