Opinion No. (1989) ( 1989 )

RE: SINGLE AUDIT ACT OF 1984

ATTORNEY GENERAL HENRY HAS REQUESTED I REVIEW YOUR RECENT REQUEST FOR AN OPINION REGARDING:

WHETHER WORKSHOP (SHELTERED WORKSHOPS) AND COMMUNITY RESIDENTIAL FACILITIES WHICH ARE PRIVATE NON-PROFIT ORGANIZATIONS PROVIDING GROUP-HOME/SHELTERED WORKSHOP SERVICES TO ADULT MENTALLY RETARDED ON CONTRACT WITH THE STATE, ARE GOVERNED BY THE SINGLE AUDIT ACT OF 1984.

WE HAVE DISCUSSED YOUR REQUEST AND, PURSUANT TO YOUR AGREEMENT, OUR RESPONSE TO YOUR QUESTION WILL TAKE THE FORM OF AN INFORMAL, LEGAL MEMORANDUM.

THE SINGLE AUDIT ACT OF 1984 (HEREINAFTER, THE "ACT") CAN BE FOUND AT 31 U.S.C.A. 7501 ET SEQ. THE BASIC REQUIREMENTS OUTLINED IN THE ACT, AND IN CIRCULAR A-128, AUDITS OF STATE AND LOCAL GOVERNMENTS", 50 FED. REG. 87, P. 19114 ET SEQ., (MAY 6, 1985), AND OMB PROPOSED CIRCULAR A-133,/'AUDITS OF INSTITUTIONS OF HIGHER EDUCATION AND OTHER NONPROFIT ORGANIZATIONS,53 FED. REG. 218, P. 45744 ET SEQ., (NOV. 10, 1988), WHICH THE FEDERAL OFFICE OF MANAGEMENT AND BUDGET ISSUED TO PRESCRIBE POLICIES, PROCEDURES AND GUIDELINES TO IMPLEMENT THE ACT, REQUIRE STATE AND LOCAL GOVERNMENTS THAT RECEIVE TOTAL FEDERAL FINANCIAL ASSISTANCE OF $100, 000 OR MORE PER FISCAL YEAR TO HAVE AN AUDIT PERFORMED ACCORDING TO CERTAIN SPECIFIED AUDITING STANDARDS. ID. AT 7502(A)(1)(A).

IF A STATE OR LOCAL GOVERNMENT RECEIVES $25,000.00 TO $100,000.00 PER FISCAL YEAR, THEY HAVE THE OPTION OF HAVING AN AUDIT PERFORMED UNDER THE REQUIREMENTS OF THE ACT OR HAVING AN AUDIT PERFORMED WHICH MEETS THE REQUIREMENTS OF FEDERAL LAWS GOVERNING THE TYPE OF PROGRAM. ID, AT 7502(A)(1)(B). IF A STATE OR LOCAL GOVERNMENT RECEIVES LESS THAN $25,000.00, THEY ARE NOT REQUIRED TO HAVE AN AUDIT PERFORMED. ID. AT 7502(A)(1)(C).

THE AUDITS REQUIRED UNDER THE ACT ARE AUDITS WHICH:

1) INDICATE COMPLIANCE WITH LAWS AND REGULATIONS THAT MAY HAVE A MATERIAL EFFECT ON FINANCIAL STATEMENTS;

2) INDICATE COMPLIANCE WITH LAWS AND REGULATIONS THAT MAY HAVE A MATERIAL EFFECT ON EACH MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAM; AND

3) INDICATE COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO NON-MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS.

ID. AT 7502(A)(2)(A-C).

AUDIT REPORTS REQUIRED BY THE ACT AND CIRCULARS A-128 AND A-133 CONSIST OF REPORTS ON FINANCIAL STATEMENTS, REPORTS ON THE SUPPLEMENTARY SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE AND REPORTS ON INTERNAL CONTROL STRUCTURE POLICIES AND PROCEDURES RELEVANT TO THE FEDERAL FINANCIAL ASSISTANCE PROGRAM.

UNDER THE REQUIREMENTS OF THE ACT, IF A PRIMARY RECIPIENT OF FEDERAL FINANCIAL ASSISTANCE; E.G., A STATE OR LOCAL GOVERNMENT, PASSES $25,000.00 OR MORE OF FEDERAL FINANCIAL ASSISTANCE THROUGH TO A SUBRECIPIENT, THE PRIMARY RECIPIENT ASSUMES CERTAIN RESPONSIBILITIES. ID. AT 7502(E)(1). FIRST, A "SUBRECIPIENT" I S:

"ANY PERSON, GOVERNMENTAL DEPARTMENT, AGENCY OR ESTABLISHMENT THAT RECEIVES FEDERAL FINANCIAL ASSISTANCE THROUGH A STATE OR LOCAL GOVERNMENT, BUT DOES NOT INCLUDE AN INDIVIDUAL THAT RECEIVES SUCH ASSISTANCE."

ID. AT 7501(15).

PRIMARY RECIPIENTS OF FEDERAL FUNDS ARE REQUIRED, UNDER THE ACT, TO ENSURE THAT SUBRECIPIENTS OF $25,000.00 OR MORE OF FEDERAL FUNDS EXPEND THOSE FUNDS IN ACCORDANCE WITH APPLICABLE LAWS. OMB CIRCULAR A-128 REQUIRES THE PRIMARY RECIPIENT:

1) DETERMINE WHETHER SUBRECIPIENTS HAVE BEEN AUDITED UNDER THE SINGLE AUDIT ACT STANDARDS;

2) WHETHER THE SUBRECIPIENT HAS EXPENDED FEDERAL FUNDS IN ACCORDANCE WITH APPLICABLE LAWS.

3) ENSURE CORRECTIVE ACTION IS TAKEN ON IDENTIFIED AREAS OF NONCOMPLIANCE;

4) CONSIDER ADJUSTMENT OF THE PRIMARY RECIPIENT'S BOOKS BASED ON AUDITS OF THE SUBRECIPIENT; AND

5) ENSURE INDEPENDENT AUDIT ACCESS TO RECORDS AND FINANCIAL STATEMENTS OF THE SUBRECIPIENT.

THE SINGLE AUDIT ACT REQUIRES SUBRECIPIENTS TO BE AUDITED IN ACCORDANCE WITH THE ACT OR, IF THE SUBRECIPIENT HAS NOT HAD AN AUDIT PERFORMED IN ACCORDANCE WITH THE ACT, THE PRIMARY RECIPIENT MUST, BY REVIEWING AUDITS PERFORMED IN ACCORDANCE WITH FEDERAL LAW OR THROUGH OTHER MEANS, (I.E., PROGRAM REVIEWS), ENSURE CORRECTIVE ACTION IS TAKEN FOR ITEMS OF NONCOMPLIANCE. ID. AT 7502(E) (L (A-B)

THEREFORE, IT APPEARS THAT EITHER THE SUBRECIPIENT MUST HAVE AN AUDIT PERFORMED WHICH MEETS THE ACT STANDARDS OR THE PRIMARY RECIPIENT MUST PERFORM AN AUDIT OF THE SUBRECIPIENT WHICH MEETS ACT STANDARDS, WHICH COULD BE ACCOMPLISHED THROUGH PROGRAM REVIEWS. SEE, OMB CIRCULARS A-128(9)(A-E) AND A-133(10)(A-E).

ARE SHELTERED WORKSHOPS AND COMMUNITY RESIDENTIAL CENTERS REQUIRED TO CONFORM TO THE HEIGHTENED AUDIT REQUIREMENTS OF THE SINGLE AUDIT ACT OF 1984? THE ANSWER WILL DEPEND, INITIALLY, WHETHER THE PROGRAM RECEIVES $25, 000.00 OR MORE PER FISCAL YEAR IN FEDERAL FINANCIAL ASSISTANCE. IF A SHELTERED WORKSHOP/COMMUNITY RESIDENTIAL PROGRAM APPLIES FOR AND RECEIVES $25,000.00 OR MORE PER YEAR THROUGH THE FEDERAL GOVERNMENT'S PRIMARY RECIPIENT (I.E., IN MOST INSTANCES, THE STATE), THEN THE LAW REQUIRES THAT THE PRIMARY RECIPIENT BE ABLE TO ACCOUNT FOR THE FEDERAL FINANCIAL ASSISTANCE RECEIVED. THIS MAY BE DONE BY RECEIVING AN AUDIT PERFORMED UNDER THE HEIGHTENED ACT AUDIT STANDARDS FROM THE SUBRECIPIENT. OR, IT MAY REQUIRE, IF SUCH AN AUDIT IS NOT AVAILABLE FROM THE SUBRECIPIENT, THAT THE PRIMARY RECIPIENT CONDUCT A PROGRAM REVIEW OR PERFORM ITS OWN AUDIT WHICH WOULD MEET ACT AUDIT STANDARDS.

ARE SUBRECIPIENTS WHO RECEIVE LESS THAN $25,000.00 IN FEDERAL FINANCIAL ASSISTANCE PASSED THROUGH THE PRIMARY RECIPIENT REQUIRED TO CONDUCT AUDITS UNDER ACT STANDARD? NO, NOT SPECIFICALLY. HOWEVER, STATE OR LOCAL LAW OR REGULATIONS, OR PERHAPS EVEN CONTRACT TERMS, MAY REQUIRE PROGRAMS TO CONDUCT AUDITS IN ACCORDANCE WITH ACT REQUIREMENTS.

(JANIE SIMMS HIPP)