The Office of Management and Budget (OMB) released its 2016 Compliance Supplement, which is effective for audits of fiscal years beginning after June 30, 2015.
Released on August 1, the supplement—codified under Title 2 of the Code of Federal Regulations, Chapter 2, Part 200 (2 CFR 200), Appendix XI—contains a number of changes that affect the following types of entities that receive federal funding or grants:
- Local governments
- Indian tribes
- Institutions of higher education
- Not-for-profit organizations
Updating terminology was an important consideration when the OMB made changes. Here are two examples of changes that were made throughout the supplement:
- OMB Circular A-133. References to this circular were removed when there were dual references to A-133 and 2 CFR Part 200 in the 2015 supplement. All audits using the 2016 supplement will be performed under 2 CFR Part 200 (the uniform guidance).
- Use of should and must. All instances of the terms “must” and “should” were reviewed, and some were changed, to ensure they reflected the OMB’s intent. In the uniform guidance and the compliance supplement, must refers to a requirement and should relates to a best practice or recommended approach.
You can review Appendix V, List of Changes, of the compliance supplement to better understand what’s new in the 2016 supplement as well as changes made to individual programs by Catalog of Federal Domestic Assistance (CFDA) number. You’ll find important announcements from OMB that may be relevant to your 2016 single audit in Appendix VII, Other Audit Advisories.
In the meantime, here’s an overview of changes that will have the greatest impact.
Part 2: Matrix of Compliance Requirements
Several compliance requirements for various programs were added, deleted, or corrected to be consistent with Part 4, Agency Program Requirements, and Part 5, Clusters of Programs.
Also, now if a compliance requirement is applicable to a specific program, the cells in the matrix will show “N” as opposed to being shaded. Compliance requirements under “D” and “K” are still “reserved” and shaded while several “Y” responses were revised to “N” and vice versa. Finally, each program or cluster included in Parts 4 and 5 was updated to include the applicable row from the Part 2 matrix to assist auditors in properly using the various parts of the supplement together. This puts the Part 2 matrix where auditors need to see it when they’re making decisions based on Parts 4 or 5.
Part 3: Compliance Requirements
Part 3 of the 2016 supplement continues to be divided into two parts:
- One is for testing awards made prior to December 26, 2014 (Part 3.1).
- The other is for testing awards or funding increments made on or subsequent to that date and subject to the uniform guidance (Part 3.2).
In Part 3.1:
- In I, Procurement and Suspension and Debarment, a reference was added to the System of Award Management, and clarification was added regarding the applicability of the $100,000 threshold and when specific approval is required.
- In L, Reporting, the note about the transition to standard progress reporting was deleted. Language was also added concerning the Department of Health and Human Services’ transition from pooled payment to award-by-award payment requests.
In Part 3.2:
- In I, Procurement and Suspension and Debarment, there was an update to the Council on Financial Assistance Reform (COFAR) frequently asked questions (FAQ) to reflect the grace period—two full fiscal years—for procurement requirements implementation. A link was also included to access micropurchase and simplified acquisition thresholds, which are $3,500 for the micropurchase threshold and $150,000 for the simplified acquisition threshold.
- In L, Reporting, the note on transitioning to standard progress reporting was removed, and language concerning the Department of Health and Human Services’ transition from pooled payment to award-by-award payment requests was added.
The Introduction to Part 3 also includes a discussion regarding COFAR FAQs published after the 2016 supplement is issued—FAQs issued or updated after September 2015. These will be available at the COFAR Web site and should be considered (to the extent they apply) in the single audit work plan and reviews.
Part 4: Agency Program Requirements
In addition to regular annual additions, deletions, and modifications to individual programs—which could be very significant to the programs themselves—the OMB removed selected American Recovery and Reinvestment Act of 2009 (ARRA) programs because funding was eliminated or greatly reduced.
Part 5: Clusters of Programs
Programs and clusters were added and deleted due to regulatory and other changes. The compliance requirements for the Student Financial Assistance and Research and Development clusters in particular saw several updates and modifications.
The Other Clusters section of Part 5 was also revised to:
- Remove clusters based on the deletion of ARRA programs in Part 4
- Update a program name
- Add new clusters
Part 6: Internal Control
Part 6 was added back to the 2016 supplement after being removed in 2015. It gives an overview of internal controls and emphasizes that these controls should be in compliance with one of the following:
- Government Accountability Office Standards for Internal Control in the Federal Government (the Green Book)
- The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Internal Control—Integrated Framework
This section of the supplement also covers the characteristics of internal controls relating to each of the five components of internal control as defined by the Green Book. Nonfederal entities will need to continue exercising judgment to:
- Determine the most cost-effective method of internal controls
- Provide reasonable assurance for compliance with federal program requirements
Appendix III: Federal Agency Single Audit, Key Management Liaison, and Program Contacts
This appendix includes updated information on responsible single audit offices and officials as well as program contacts.
Appendix VII: Other Audit Advisories
The OMB made several substantive changes to this appendix, including:
- Discussing the impact of implementing the uniform guidance on the auditor’s major program determination, specifically as it relates to changes in risk assessment criteria for Type A programs under the uniform guidance
- Revising the due date for audit reports and its effect on low-risk auditee status as a result of the shutdown of the Federal Audit Clearinghouse (FAC) during 2015 and the extensions provided
- Removing the safe harbor coverage for loan and loan guarantee programs from the 2016 supplement (this guidance is now included in 2 CFR Part 200, subpart F)
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For questions about how the OMB’s 2016 compliance supplement could affect your organization, contact your Moss Adams professional. You can also visit our uniform guidance topic page for additional articles and resources related to the OMB’s new guidance for federal awards.