Getting Ready for an Audit Under the New Uniform Guidance

Written on April 14, 2015

With the introduction of the new uniform guidance in Dec. 2013, significant changes are occurring in the federal grant landscape. In the January 2015 article we wrote for Insights For Nonprofits newsletter, we discussed developing an action plan to make sure your organization is prepared.

Now that your action plan is in place, it is time to start thinking about the impact the new rules will have on your audit as this year marks the last time the “old” audit rules will apply. Now would be a great time to have a nice, long lunch with your auditors and discuss the impact of the new uniform guidance on next year’s audit.  Some good topics for conversation include:

  1. What more will the auditors need to see regarding internal control? Since controls must be in place over each area of compliance for each grant, this coming year would be a good time to make sure all policy and procedure manuals are up to date. In addition, make certain that “monitoring” controls are in place to determine when controls are not functioning.  It should go without saying that corrective actions should be taken (and documented) when control failures are identified.
  2. How can you best demonstrate to the auditors that reasonable measures have been taken to safeguard personally identifiable information, as required under the new guidance? Are donor databases restricted to only certain individuals? If the organization is on a network that has outside access, have appropriate measures been taken to ensure the network cannot be hacked?
  3. How will the auditors plan to test time and effort charged to a grant?  The new guidance allows for a strong system of internal control to be in place in lieu of detailed time and effort reports. In fact, internal controls over time and effort reporting must be in place even if an organization determines that detailed time and effort reports will be maintained. Now is a good time to document, by control objective, the internal controls in place over time and effort reporting. Include monitoring controls and test whether the controls are working on at least a quarterly basis.
  4. What will the auditors expect to see to demonstrate compliance with the new sub recipient  monitoring requirements? At a minimum, pre-award risk assessment procedures and post award monitoring procedures should be carefully documented.  Consider using the same template for grants to sub-recipients (to the extent possible) and ask the auditors to review and provide feedback as to any audit concerns or issues the contract might pose.
  5. How would my audit change this year if the new requirements were in place? Ask your  auditors to provide you a detailed “pro-forma” determination of what grants would have been audited as major programs as of the fiscal year just ended, assuming the new audit thresholds had been in place. This will give you some idea as to whether the audit burden will be more or less with the new requirements and which grants will more likely be subject to audit.

There are several other things you can do on your own to get ready for your 2015 audit, and much centers on documentation. For example:

1. Keep a master list of grants, segregated as follows:

  • “old grants” (monies received prior to the fiscal year beginning after Dec. 26, 2014) – these follow “old” guidance;
  • “old grants with new funding” (grants awarded prior to the fiscal year beginning after Dec. 26, 2014 but funds received after Dec. 26, 2014) – these follow “new” guidance;
  • “old grants with old and new funding” (grants awarded prior to the fiscal year beginning after Dec. 26, 2014, some funds received prior to that time, and other funds received after that time) – these follow both “old” and “new” guidance; and
  • “new grants” (grants awarded after Dec. 26, 2014) – these follow “new” guidance.

This list will help the auditors identify the applicable guidance to apply to the grants selected for audit, and will help those within the organization ensure the appropriate guidance is being followed in administering the grants.

2. Document which procurement procedures are being followed for each of the above grants. The new guidance allows grantees to follow existing procurement guidance through the end of the fiscal year beginning after Dec. 26, 2014.  Alternatively, grantees may adopt the new procurement guidance. Auditors will test compliance with the procedures you have elected, so make certain that the documentation is clear.

3. Update all internal control documentation so that it reflects the actual procedures performed. Particular attention should be given to the controls over procurement, time and effort reporting, and sub-recipient monitoring, as these are the areas with the greatest changes under the new guidance. Evaluate the controls documented to ensure they are appropriately designed to address the control objective. Test the controls documented by selecting a sample of transactions to make certain that controls are being performed and are effective. If control failures are noted, ensure that measures are taken to correct the problem and to keep it from re-occurring.

Be on the lookout throughout the year for additional guidance and clarification on the new uniform guidance. With such sweeping changes, many questions will arise and many aspects of the administrative guidance will be subject to interpretation. Likewise, as certain of the audit requirements are subject to interpretation; learning the direction your auditors are heading now will better prepare you for their arrival to perform the audit next year. Please contact your Warren Averett advisor with any questions or concerns you have about how your audit will be affected by the new uniform guidance.

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