STATEMENT OF
DEIDRE A. LEE
ACTING DEPUTY DIRECTOR FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION,
AND TECHNOLOGY
COMMITTEE ON GOVERNMENT REFORM
May 13, 1999
Mr. Chairman and members of the Subcommittee, I am pleased to be here today to discuss the
Single Audit Act Amendments of 1996. First, I would like to thank this Subcommittee for its
continued efforts to improve financial management throughout the Federal Government. Indeed,
the Single Audit Act Amendments of 1996 is only one of several laws this Subcommittee has
used to promote financial accountability in Government. The key financial management
legislation of recent years -- the Chief Financial Officers Act of 1990 (CFOs Act) and the
Government Management and Reform Act of 1994 (GMRA), which together require the Federal
Government to prepare and have audited agency and Government-wide financial statements --
received important support from this Subcommittee.
The interrelationship of these legislative initiatives becomes more apparent as the Government
gains experience in preparing audited financial statements. To make the CFOs Act and GMRA
financial statement process work, the Government needs to rely on the single audit process to
provide assurance over the more than $300 billion in Federal funds expended annually by States,
local governments, and non-profit organizations.
BACKGROUND
In short, the single audit process became widely accepted with the Single Audit Act of 1984.
Under this act, State and local governments were generally required to have one audit performed
that encompassed the financial activities of the entire entity, including all of the Federal programs
administered by the entity -- rather than performing individual audits on a grant-by-grant basis.
Under the single audit process, grantees are responsible for having audits performed -- usually by
a certified public accounting (CPA) firm or State auditor -- and then must share the results of the
audit with the Federal Government. Federal grant-making agencies are responsible for using the
results of these audits in their grants-monitoring processes.
In the early 1990s, studies conducted by the National State Auditors Association (NSAA), the
Inspectors General (IG) Council (called the President's Council on Integrity and Efficiency, or the
PCIE), and the General Accounting Office (GAO) concluded that the Single Audit Act of 1984
had promoted accountability in Federal grant programs and improved financial management
practices at States and local governments. The studies found, however, that though the 1984 Act
was working, there were areas that needed to be strengthened. The specific recommendations in
these studies served as the foundation for the Single Audit Act Amendments of 1996 (1996
Amendments or Act).
1996 AMENDMENTS
The 1996 Amendments received bipartisan support and were endorsed by the GAO, NSAA, and
OMB. On July 5, 1996, the President signed the amendments into law.
The key provisions of the 1996 Amendments:
- extend coverage to audits of non-profit organizations that administer Federal programs;
- raise the amount of Federal funds an entity can administer before they are required to perform
a single audit from $25,000 to $300,000;
- authorize a risk-based approach to selecting programs for testing;
- accelerate the audit report due date from 13 months after an entity's year end to 9 months; and
- increase administrative flexibility in implementing the Act by authorizing OMB, in certain
circumstances, to use pilot projects and increase the $300,000 audit threshold.
OMB ACTIONS TO IMPLEMENT THE 1996 AMENDMENTS
The 1996 Amendments charge the Director of OMB with overall responsibility for implementing
the Act. To fulfil this responsibility, OMB has completed several major initiatives -- ranging
from issuing Government-wide single audit policies in OMB Circular A-133 to developing
implementation tools for grantees and auditors. The following paragraphs detail OMB's
implementation of the 1996 Amendments. These accomplishments would not have been possible
without the sustained support of single audit stakeholders -- particularly, the GAO, Federal grant-making agencies, NSAA, and the American Institute of Certified Public Accountants (AICPA).
Circular A-133: On June 30, 1997, OMB published a revised Circular A-133, "Audits of States,
Local Governments, and Non-Profit Organizations," which establishes uniform single audit
requirements for States, local governments, and non-profit organizations that administer Federal
programs. As a result, Circular A-128, issued in 1985, which established separate audit
requirements for States and local governments, was rescinded that same day. Because the single
audit studies noted Federal agency inability to implement OMB guidance in a timely manner,
OMB coordinated Federal agency efforts to incorporate Circular A-133 in agency regulations
within two months of its issuance.
Compliance Supplement: In June 1997, OMB published the Circular A-133 Compliance
Supplement. This document identifies key compliance requirements the Federal Government
expects auditors to address in performing single audits. The last previous update of the
compliance supplement was in 1991. In the single audit studies, State auditors and independent
public accountants said that their single audit work was hampered by the lack of updated
compliance supplement information. In 1996, OMB led an interagency team to update the
compliance supplement so that it would be available as auditors conducted the first cycle of single
audits performed under the 1996 Amendments. In addition, OMB established a process for using
interagency teams to issue annual updates to the compliance supplement. As a result, the first
annual update of the June 1997 compliance supplement was published in May 1998. I am pleased
to announce that the second annual compliance supplement update was recently finalized. It will
be available soon on OMB's home page and in hard copy. This April 1999 compliance
supplement provides specific guidance for auditing approximately 120 Federal programs, which
account for over 90 percent of Federal funds expended annually by States, local governments, and
non-profit organizations.
Government-wide Single Audit Database: Another key recommendation identified by the single
audit studies was to make better use of single audit results. In September 1996, OMB led an
interagency task force, working with the Federal Audit Clearinghouse, to establish a government-wide database for single audit results. In August 1997, OMB finalized a standard "data collection
form," used to collect information about grantees, the Federal programs they administer, and the
related single audit results. This information is then entered into the Clearinghouse's database.
By 1998, the database was fully operational and publicly accessible on the Internet.
As with any new system, the Clearinghouse experienced initial implementation problems.
However, working with OMB and an interagency users group, the Federal Audit Clearinghouse
has addressed, or is in the process of addressing, their most significant challenges. The Federal
Audit Clearinghouse is also developing a "web-based data collection form" that should be
available for use by Fall 1999. The web-based form provides built-in, on-line edit functions and
user-friendly, interactive capabilities, which should significantly improve the data collection
process.
Professional Outreach: Since passage of the 1996 Amendments, OMB has been providing
training in single audit requirements and helping develop single audit implementation tools.
OMB staff have given extensive training to grantees and single audit professionals at AICPA
national conferences, State CPA societies, and national and regional Intergovernmental Audit
Fora. OMB has also provided single audit training to Federal agencies - both to program officials
and the IG community.
On March 17, 1998, the AICPA published Statement of Position 98-3, "Audits of States, Local
Governments, and Not-for-Profit Organizations Receiving Federal Awards," which provides
detailed guidance and tools for auditors conducting single audits. OMB worked closely with the
AICPA and State audit community in developing this guidance. In addition, OMB assisted the
PCIE in updating the quality control review guides used by Federal agencies to ensure that the
single audit work performed by independent auditors adheres to professional standards. These
guides are expected to be finalized in July, 1999.
FUTURE INITIATIVES
Although significant accomplishments have been made, additional work is required to
successfully implement the 1996 Amendments. I would like to discuss several areas that require
continued work.
Compliance Supplement Updates: Single audit stakeholders continue to emphasize the need for
annual updates to the compliance supplement. Experience shows that this is a resource-intensive
exercise. The continued commitment of OMB, Federal agencies, and GAO is necessary to ensure
that the compliance supplement is updated on an annual basis.
Federal Audit Clearinghouse: OMB will continue working with the Federal Audit Clearinghouse
to streamline the report and data submission process. The continued involvement of Federal
agencies is needed to assure that the Government's informational needs are met by the
Clearinghouse. OMB will work closely with single audit stakeholders to assess the completeness
and accuracy of the Clearinghouse's single audit database.
GAO's Legislative Monitoring: Under the 1996 Amendments, GAO is responsible for
monitoring proposed legislation for provisions inconsistent with the Act. Legislatively-mandated
audit requirements inconsistent with 1996 Amendments would erode the single audit concept and
reduce the effectiveness of the Act. OMB will continue to support GAO's work in this area.
Quality Assurance: The second year of single audit reports prepared under the 1996 Amendments
are being submitted to the Federal Government, yet little has been done to assess the quality of
single audit work performed by independent auditors. This is an important component of the
Federal Government's effort to improve single audits. Without evidence demonstrating that
single audits are being conducted by independent auditors in accordance with professional
standards and the 1996 Amendments, Federal agencies could be placing inappropriate reliance on
the single audit process. To prepare audited financial statements under the CFOs Act and
GMRA, the Government needs to be able to rely on the single audit process to provide audit
coverage of the more than $300 billion in Federal funds expended annually by States, local
governments, and non-profit organizations. The single audit process is the only practicable way
to provide audit coverage for these funds. The PCIE recently began developing new government-wide quality assurance policies and procedures. OMB will work closely with the PCIE and single
audit stakeholders to ensure single audit quality.
Pilot Projects: The 1996 Amendments permit OMB to authorize pilot projects to test alternative
methods of achieving the objectives of the Act, after consulting with Congress. The
Subcommittee should be commended for its insight in providing administrative flexibility in the
Act through this provision. After recent consultation with Congress, OMB approved this week
the first pilot project under the 1996 Amendments. This pilot authorizes the State of Washington
to audit as one entity the State education system and approximately 200 local education agencies
throughout the State. Currently, separate single audits are conducted for these 200 entities. This
pilot is expected to result in audit efficiencies and greater opportunities to identify systemic
problems in the State's administration of Federal programs. OMB and the U.S. Department of
Education will monitor this pilot project and consider the impact of its results on future single
audit initiatives. OMB will also continue working with single audit stakeholders to consider
future pilot projects.
CONCLUSION
OMB believes that significant progress has been made towards achieving the underlying
objectives of the Act: improving accountability over Federal programs; establishing uniform
single audit requirements; promoting efficient and effective use of audit resources; reducing
burden on grantees; and maximizing reliance on single audits by Federal agencies. However, the
sustained support and commitment of single audit stakeholders is required to ensure that future
implementation initiatives are completed.
Thank you again Mr. Chairman and members of the Subcommittee for your continued interest in
improving the single audit process and Federal financial management as a whole. This concludes
my remarks. I would be pleased to answer any questions.
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