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RegularXXN\  P8XP(hH  Z 6Times New Roman RegularXXN\  P9XP(hH  Z 6Times New Roman RegularXXN\  P:XP(hH  Z 6Times New Roman RegularXXN\  P;XP(hH  Z 6Times New Roman RegularXXN\  P<XP(hH  Z 6Times New Roman RegularXXN\  P=XP(hH  Z 6Times New Roman RegularXXN\  P>XP(hH  Z 6Times New Roman RegularXXN\  P?XP(hH  Z 6Times New Roman RegularXXN\  P@XP(hH  Z 6Times New Roman RegularXXN\  PAXP(hH  Z 6Times New Roman RegularXXN\  PBXP(hH  Z 6Times New Roman RegularXXN\  PCXP(9 Z 6Times New Roman RegularXA\  PDP(9 Z 6Times New Roman RegularXN\  PEXP(9 Z 6Times New Roman RegularXA\  PFP(9 Z 6Times New Roman RegularXN\  PGXP(9 Z 6Times New Roman RegularXA\  PHP(9 Z 6Times New Roman RegularXN\  PIXP(9 Z 6Times New Roman RegularXA\  PJP(9 Z 6Times New Roman RegularXN\  PKXP(9 Z 6Times New Roman RegularXA\  PLP(9 Z 6Times New Roman RegularXN\  PMXP(9 Z 6Times New Roman RegularXA\  PNP(hH  Z 6Times New Roman RegularXN\  POXP(hH  Z 6Times New Roman RegularXA\  PPP(hH  Z 6Times New Roman RegularXN\  PQXP(hH  Z 6Times New Roman RegularXA\  PRP(hH  Z 6Times New Roman RegularXN\  PSXP(hH  Z 6Times New Roman RegularXA\  PTP(hH  Z 6Times New Roman RegularXN\  PUXP(hH  Z 6Times New Roman RegularXA\  PVP(hH  Z 6Times New Roman RegularXN\  PWXP(hH  Z 6Times New Roman RegularXXN\  PXXP(9 Z 6Times New Roman RegularX2YF2A$Univers 65BoldXN\  PZXP\  `$Times NewRomanX?b2[^F2A$Univers 65Bold^XN\  P\XP\  `$Times NewRomanX?b2P]^PF2A`Univers 55^XN\  P^XP\  `$Times NewRomanX?b2P_^PF2A`Univers 55^XN\  P`XP\  `$Times NewRomanX?b2Pa^PF2A`Univers 55^XN\  PbXP\  `$Times NewRomanX^-\  Pc^P\  `$Times NewRoman^XN\  PdXP\  `$Times NewRomanX2Vo^o3|x PRESENTATION/CASE STUDY DETERMINATION OF MAJOR FEDERALL PROGRAM ON OMB CIRCULAR A133 AUDITS PRESENTED AT 14TH ANNUAL AICPA NATIONAL GOVERNMENTAL ACCOUNTING & AUDITING UPDATE CONFERENCE  MAJOR PROGRAM DETERMINATION  Steps of RiskBased Approach " Step 1 n Identify Type A programs based on total Federal Awards (FA) expended: l Expenditures $300k to $10 mil(- $300k Expenditures l $10 mil to $100 milhh#(- 3.0% of FA Expenditures l $100 mil to $1 bilhh#(- $3 mil Expenditures l $1 bil to $10 bilhh#(- 0.30% of FA l Expenditures $10 bil to $20 bil(- $30 mil l Expenditures greater than $20 bil(- 0.15% of FA n All other programs are labeled Type B n Exclude large Type A loan programs from calculation n Biennial audits: use total FA expended in twoyear period Steps of RiskBased Approach " Step 2 n Identify lowĩrisk Type A programs l Audited as a major program in 1 of 2 most recent years l In most recent year, no audit findings that are: ` ` u Reportable conditions in internal control ` ` u Material noncompliance with laws & regulations ` ` u Known questioned costs > $10,000 ` ` u Known questioned costs when likely questioned costs > $10,000 ` ` u Known fraud ` ` u Misrepresentations by auditee in summary schedule of prior audit findings ,X hp x (#%'0*,.8135@8: 5% of a Type A program Deviation from Use of Risk Criteria .520(i) of Circular A133 n For 1st year audits, major programs may be determined as:  l All Type A programs, plus  l Any Type B programs necessary to meet the percentage of coverage rule n 1st year audit defined as the 1st year:  l Entity is audited under the Revised Circular A133, published 6/30/97  l Under a change in auditors (can be used only once every 3 years)    RiskBased Approach An Overview n Objective: Rotate the mix of Federal awards covered by audit over time  < n Auditors are responsible for determining major programs using riskbased approach F n May delay use of riskbased approach in 1st year under revised A133  < n Auditors judgment required and presumed correct, if properly documentedxxA F n Incorporates percentage of coverage rule and lowrisk auditee concept  < n A133 prescribes a 4step process to implement riskbased approach     X` hp x (#%'0*,.8135@8:XP# Program 6$ 240,0004 B#XN\  P?XP#< High #XN\  P@XP# Program 7$ 90,0004 B#XN\  PAXP#< #XN\  PBXP# Total$ $10,000,000 #XN\  PCXP# Step 4 Determine Major Programs Part 1 Non Lowrisk Type A Programs Type A Programs 1 and 4 are not lowrisk and, therefore, are major programs. Part 2 HighRisk Type B Programs In accordance with  .520(e)(2)(I)(A), the auditor is required to audit one highrisk Type B program. Since there is only one highrisk Type B program, the auditor must audit it in order to achieve coverage of at least onehalf The cap does not apply since the number of lowrisk Type A programs is two. Since Program 6 is the only highrisk Type B program, it is audited as a major program. Part 3 Percentage of Coverage Rule Aggregate Federal expenditures for major Programs 1,4, and 6 are $4,840,000, or 48.4% of total Federal awards expended. Lowrisk Auditee Determination XYZ continues to qualify as a lowrisk auditee. During the last two years (1998 and 1999), XYZ was audited under Circular A133, the opinions on XYZ s financial statements were unqualified, and no material weaknesses in internal controls at the financial statement level were reported. Also, the only Type A program with audit findings was Program 2, and these findings were not material weaknesses in internal controls, material noncompliance to the program, or known or likely questioned costs which exceeded 5% of total expenditures for Program 2. Therefore, under criteria for a lowrisk auditee, XYZ only needs to cover 25% of Federal expenditures. The requirement for 25% coverage is met without selecting additional programs. @ TTT X TTT X @ P P  $(2000 ă $$ Major Programs ă p %  High Risk2$ p  Program 1bb%]]/$2,600,000  Program 4bb%]]/$2,000,000  Program 6bb%]]/$ 240,000  bb%]]/$4,840,000 (48.4% of $10,000,000) # % of Coverage Rule ă   Not Applicable  Totalbb%]]/$4,840,000 (48.8% of $10,000,000)  '3  /4   5$ Major Program Determination Worksheet for XYZ ă  )    1997 .  1998 D  1999 ))W  2000    &*/TxBr_t1#A\  PDP#Federal Step 4&Total0Step 4;Total EStep 4&&QTotal**[Step 4//eTotal  , t )/TxBr_t2 Expenditurest t Determination-Determination;MajorCDetermination))YDetermination//eMajor  BQG"),O00TxBr_t3 B| #XN\  PEXP#Type AB y$4 dddyڃ Part 1BBPart 3,y$4 dddyPart 1QQ3Part 3By$45 dddyPart 1G"G"IPart 3))Wy$4( dddyPart 1,,_Part 3  5) 0330TxBr_t16Bl 1BQ $2,600,000B26.0%BmE%26.0%B(+W26.0%BD/2d26.0% d %|/U$3330TxBr_t17Bl2BQ $2,200,000B 22.0%Bm%22.0%B,22.0%Bw :22.0%B A22.0%B%'P22.0% /30TxBr_t18Bl3BQ $2,600,000B 326.0%Bw :26.0%  p 5) 0330TxBr_t19Bl 4Bn $2,000,000Bt   20.0%BmE%20.0%B(+W20.0%BD/2d20.0%  0#"2& ) 00303TxBr_t4BType BB  Part 2BhB0&,Part 2B5B#x<BPart 2B"(#JB2&'Q ) )WPart 2 Bl5B$270,000 2.7%BhB%2.7%,B5B#x<B2.7%B"(#JB%'P2.7% Bl6B$240,000 BhB0&,2.4%B5B ;2.4%BB"(#JB2&'Q ) )W2.4%B/81e2.4% Bl7BM` $90,000 BhB0&,B5B#x<BBh"(#I0.9%B%'P0.9% B(TotalB $10,000,000 44.7%B26.0%Bh%70.7%,24.4%B326.0%B[ :50.4%B24.7%Bh"(#I0.9%Bj%%O25.6% ) )W48.4%BD/81d48.4%   * Qualify as lowrisk auditee?No4No""IYes,,_Yes ", Note  Step 4 of the riskbased approach consists of three distinct parts as follows:  Part 1 represents non lowrisk Type A programs that are audited as major programs.  Part 2 represents highrish Type B programs that are audited as major programs.  Part 3 represents additional programs that are audited as major programs to meet the percentage of coverage rule (50 percent for highrisk  auditee and 25 percent for lowrisk auditee) Note This worksheet is a training tool only and is not required by 0MB Circular A133. ( SUMMARY OF AUDIT RESULTS for XYZ ă hTTT. m A TTT. m A h "P P "N#A\  PFP#Program #XN\  PGXP# 1996   1997   1998   1999 "P @ HP @ H"  1 #A\  PHP#No audit findingsNo audit findings"P P "##XN\  PIXP#2#A\  PJP#Opinion qualification for material#XN\  PKXP# #A\  PLP#noncompliance.One reportable condition in internal control. Three audit findings related to noncompliance and known questioned costs of $50,000. Estimate of total questioned costs less than 3%. No material noncompliance.Improvements in internal controls and compliance. No reportable conditions reported. Known questioned costs of #XN\  PMXP#$35,000.#A\  PNP# Estimate of total questioned costs less than 2%. No material noncompliance.Improvements in internal controls and compliance. No reportable conditions reported. One audit finding with questioned costs of $10,200 which was an isolated instance. No material noncompliance."P @ HP @ H"##XN\  POXP#3#A\  PPP#No audit findings.No audit findings."P @ @ HP @ @ H"##XN\  PQXP#4#A\  PRP#No audit findings."P @ P @ "##XN\  PSXP#5#A\  PTP#Significant problems discovered at district office. All program costs are questioned. Material weaknesses in internal control and material noncompliance.Audit Followup Only Corrective action had been initiated. XYZ is negotiating with Federal awarding agency on payback of questioned costs.No audit findings."P @ @ P @ @ "##XN\  PUXP#6#A\  PVP#A reportable condition in internal controls, material matters of noncompliance, and known questioned costs totaling $24,000.Audit Followup Only Corrective action not completed on conditions surrounding reportable condition disclosed in the 1998 audit."P  A A A P  A A A "##XN\  PWXP#7No audit findings.Note: Shaded cell indicates program was not audited as a major program and audit followup was not required.  This worksheet is a training tool only and is not required by 0MB Circular A133. #XN\  PXXP# 3'Letter @ TTT $ TTT $ @ P P  Factors to Consider in Performing Risk Analysis/Determining Major Federal Programs Fp $   Audit efficiency Fp $   Responsiveness to client requests Fp $   Severity of high risk assessment i.e. number of factors considered Fp $   Rotation of programs audited Fp $   Auditor judgment