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

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

Yes , the Single Audit Act Standard applies to the question.
The Single Audit Act applies when a Non-Federal Entity had an Expenditure of Federal Funds/Grants/Awards of $ 750,000 or more in their fiscal year.

Non-Federal Entity includes:

1. State and Local Governmnets
2. NPO (Not for Profit Organizations)
3. Indian Tribes
4. Higher Education Institutions

Therefore the Total Expenditure recorded by Local Government is $ 2,200,000. So Single Audit Act find its applicability.

HHS1; new this year and never audited	$                                 880,000.00
HHS2; audited last year, no major findings	$                                 770,000.00
Department of Transportation	$                                   65,000.00
Department of Agriculture	$                                 485,000.00
	$                             2,200,000.00

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

Single Audit Act is used by Federal Governments as a tool to determine whether or not the Entity has complied with Direct and Material Compliance Requirements for each program. It ensures adherence of Federal Governments Requirement with respect to fund usage and compliance to ensure Sound Financial Management, bringing about uniform guidelines for audits and effective and effective utilisation of available resources.

This Act is called Single Audit Act because it Merges various audit requiremnts for different Federal Grants/Awards into a Single Audit.

How Does it Differs from GAGAS ?

Both Single Audit and GAGAS (Generally Accepted Government Auditing Standards Audits) or Yellow Book Audits go simultaneously.

Single Audit is an Audit of Management and Usage of Funds by the Receiver and other compliances attached with such Grant/Reward. It covers both Financial and Compliance Requirements.

On the other hand GAGAS Audits or Yellow Book Audits is an Overall Audit aimed at forming and expressing an opinion over Financial Statements of Government Organisations/Entities.

So the basic difference is that Single Audit is Audit of a Part of Financial Statements i.e. Federal Funds/Grants Expended while GAGAS Audit is a complete Audit i.e. Entity as a whole of its Financial Statements.

For any Single Audit performed a GAGAS Audit follows.

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

An Auditor is First required to identify or Categorize the Programs in TYPE A or TYPE B.

Therefore the condition applicable would be " Total Federal Awards expended during the Year is equal to or Exceeds $ 750,000 but Equal to ot less than $ 25,000,000 . Then any Program expending more than $ 750,000 is a TYPE A Program.

All else programs which do not satisfies the criteria for TYPE A Program is considered as TYPE B Program.

Program	Expenditure	Type
HHS1; new this year and never audited	$                                 880,000.00	A
HHS2; audited last year, no major findings	$                                 770,000.00	A
Department of Transportation	$                                   65,000.00	B
Department of Agriculture	$                                 485,000.00	B
	$                             2,200,000.00

A Risk Assessment of TYPE B or TYPE B Programs needs to be done to identify the Low Risk or High Risk Programs.

HIgh Risk TYPE A Program : HHS1 (This is because it has not been audited at least once in Past 2 Years)

Low Risk TYPE A Program : HHS2 (It has been audited once last year and no material weakness or any Modified Opinion or Questioned Costs excedding 5% of Total Federal Expenditure has been Reported)

For TYPE B Programs, Minimum 25% of Number Low Risk TYPE A Programs are considered as High Risk TYPE B Programs i.e.,  

Low Risk TYPE A Program : 1

MInimum 25% of TYPE A Program = 25% *1 = 0.25 or 0 (Rounded Off)

In Assessing the Risk of TYPE B Programs Auditor Should use Professional Judgement and Guidance.

Low Risk TYPE B Program : Department of Transportation

Low Risk TYPE B Program : Department of Agriculture

Therefore Auditor is Require to Audit TYPE A Program HHS1 only.