It’s not just major corporations that will benefit from the American Recovery and Reinvestment Act (ARRA). A large number of governmental and not-for-profit organizations also will find that they, too, have access to a large portion of the more than $780 billion marked for economic recovery. Of specific importance regarding these funds is the President’s promise of accountability, “We are asking the American people to trust their government with an unprecedented level of funding to address the economic emergency. In return, we must prove to them that their dollars are being invested in initiatives and strategies that make a difference in their communities and across the country. Following through on our commitments for accountability and openness will create a foundation upon which we can build as we continue to tackle the economic crisis and the many other challenges facing our nation."
The federal government has concluded that the single audit process will be a major component of its plan for determining accountability and evaluating the expenditure of federal awards by governmental and not-for-profit organizations. Most ARRA programs will bear unique Catalog of Federal Domestic Assistance (CFDA) numbers, specifically identifying them as ARRA awards. However, program participants should not assume this information will be readily available, especially if they do not receive such funds directly from the federal government. Although the funding source is required to provide this information to award recipients, we suggest recipients obtain formal representations from providers concerning the source and CFDA number for any awards suspected to be of federal origin. This information should be obtained before the participant starts to actually receive or expend funds because it is needed to obtain relevant information about applicable laws, regulations, and award provisions concerning the use and accountability for such funds.
To demonstrate accountability, when an organization is planning to participate in any federally funded programs, steps should be taken as soon as possible to develop or enhance existing internal controls to ensure compliance with all of the many laws, regulations, and award provisions that will apply to the various federal programs, including those under which ARRA awards will be made. To avoid noncompliance and reports of control deficiencies, these controls should be in place before program participants start to expend federal awards.
To date, key provisions of the Single Audit Act and OMB Circular A-133 have not changed as a result of the ARRA. However, because of the President’s pledge of accountability, it is likely that many governmental and not-for-profit organizations participating in federal awards that were not previously subject to a single audit will be required to have one. Other governmental or not-for-profit organizations that have had single audits in the past may find that they have a number of new programs, or they are participating in new clusters, that will need to be audited as major programs.
Under provisions of the ARRA, single audit information, which includes the entity’s financial statements and auditor’s reports, including those on internal control and compliance, will be made readily available to the public. While this is clearly in line with the President’s mandate for accountability, this could be especially embarrassing for organizations if their single audit reports are other than unqualified or if findings are reported. Additionally, members of the Federal Inspectors General community have indicated their plans to closely monitor single audit quality and the results of single audits.
For organizations planning to participate in ARRA awards, we recommend (a) as much information as possible be obtained about the proposed awards before a decision is made to participate; (b) the organization be prepared for any additional cost and effort associated with the potential design/re-design and implementation of effective internal controls; and (c) the organization be prepared for the impact and cost of any additional single audit requirements.
More information about the ARRA is available at www.recovery.gov.
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