Single Audit
Actions Needed to Ensure That Findings Are Corrected Gao ID: GAO-02-705 June 26, 2002In examining the efforts of the Departments of Education, Housing and Urban Development, and Transportation to ensure that recipients corrected single audit report findings, GAO found that each agency had procedures for obtaining and distributing the audit reports to appropriate officials for action. However, they often did not issue the required written management decisions or have documentary evidence of their evaluations of and conclusions on recipients' actions to correct the audit findings. In addition, program managers did not summarize and communicate information on single audit results and recipient actions to correct audit findings to agency management.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-705, Single Audit: Actions Needed to Ensure That Findings Are Corrected
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United States General Accounting Office:
GAO:
Report to the Chairman, Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations, Committee on Government
Reform, House of Representatives:
June 2002:
Single Audit:
Actions Needed to Ensure That Findings Are Corrected:
GAO-02-705:
Contents:
Letter:
Results in Brief:
Background:
Objectives, Scope, and Methodology:
Agencies‘ Efforts to Ensure That Single Audit Findings are Corrected:
Single Audit Results are Not Communicated to Agency Management:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Comments From the Department of Education:
Appendix II: Comments From the Department of Housing and Urban
Development:
Appendix III: Comments From the Department of Transportation:
Table:
Table 1: Number of Audit Findings with Documented Management Decisions:
Abbreviations:
CIFG: Capital Investment and Formula Grants:
CMS: Centers for Medicare and Medicaid Services:
CDBG: Community Development Block Grant:
CPD: Office of Community Planning and Development:
FAC: Federal Audit Clearinghouse:
HPCG: Highway Planning and Construction Grants:
HUD: Department of Housing and Urban Development:
OCFO: Office of the Chief Financial Officer:
OESE: Office of Elementary and Secondary Education:
OIG: Office of the Inspector General:
OMB: Office of Management and Budget:
OSFA: Office of Student Financial Assistance:
PIH: Office of Public and Indian Housing:
REAC: Real Estate Assessment Center:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
June 26, 2002:
The Honorable Stephen Horn:
Chairman:
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations:
Committee on Government Reform:
House of Representatives:
Dear Mr. Chairman:
The Single Audit Act, as amended (Single Audit Act), is intended to
promote sound financial management, including effective internal control
over federal awards administered by state and local governments and
nonprofit organizations. According to Office of Management and Budget
(OMB) figures, these awards amounted to about $325 billion in fiscal
year 2001. The audits required by the Single Audit Act are a critical
element in the federal government‘s ability to ensure that federal
funds are properly used. Each year, about 30,000 single audits are
conducted with several thousand identifying weaknesses in award
recipients‘ financial management and internal control systems. The
federal government must take timely and effective action to ensure that
these weaknesses are corrected, not only to help ensure effective
program operations but also to help minimize improper payments --
payments of federal funds that should not have been made or that were
made for incorrect amounts.
Given the important role of single audits as an oversight and monitoring
tool and the critical need to address audit findings, you requested
information on how federal agencies use single audits and what agencies
are doing to ensure that recipients of federal awards have corrected
problems identified by these audits. On February 19, 2002, we briefed
you on the results of our survey on how the 24 agencies subject to the
Chief Financial Officers Act indicate that they use single audit
results and subsequently summarized those results in a report.[Footnote
1] This follow-up report focuses on what program managers for six large
programs, two each at the departments of Education (Education), Housing
and Urban Development (HUD), and Transportation (Transportation), do to
(1) ensure that federal award recipients correct the current year and
recurring findings identified in single audit reports and (2) summarize
and communicate single audit results and recipient actions to correct
audit findings to agency management for its use in evaluating agency
oversight and monitoring of recipient performance and in identifying
programwide and recipient-specific problem areas needing management
attention.
Results in Brief:
In examining the efforts of the departments of Education, HUD, and
Transportation to ensure that recipients corrected single audit report
findings, we found that each agency had procedures for obtaining and
distributing the audit reports to appropriate officials for action.
However, they often did not issue the required written management
decisions or have documentary evidence of their evaluations of and
conclusions on recipients‘ actions to correct the audit findings. In
addition, program managers did not summarize and communicate
information on single audit results and recipient actions to correct
audit findings to agency management.
The three agencies have implemented procedures for obtaining single
audit reports and distributing audit finding information to appropriate
agency officials. These procedures varied from having (1) a designated
unit review and evaluate audit findings and forward them to the
appropriate organizational units for action to (2) diffused
responsibility calling for program units to identify and obtain single
audit reports with findings involving their programs and to take action
on those findings.
Program managers did not consistently issue written management
decisions to notify the recipients of the corrective actions the federal
agency deemed necessary to correct the audit findings contained in the
single audit reports. Our review of the audit files at the three
agencies revealed that, as of March 2002, the agencies had issued
management decisions for only 75 (about 30 percent) of the 246 audit
findings contained in our sample of calendar year 1999 single audit
reports.
The agencies noted several reasons for not preparing management
decisions for all findings. These include:
* the findings were insignificant and did not require further action;
* follow up with recipients was performed but not documented;
* the audit report that identified the finding also indicated that the
recipient had corrected the audit finding as of the report issuance
date; and;
* review of subsequent single audit reports showed that the recipient
corrected the finding.
The audit files generally did not contain documentation that agency
officials considered any of these factors or used them as a
justification for not preparing the required management decisions.
Regarding agency efforts to ensure that federal award recipients correct
audit findings, we found that, while the audit files contained copies of
recipient documents and other records, they did not contain agency
evaluations of or conclusions on the adequacy of the actions cited in
those records. Without such information, we could not determine the
agency‘s position on the adequacy of the actions taken or on the need
for additional actions.
Program managers also did not summarize and communicate information
on single audit results and recurring and commonly occurring findings to
agency management. Compiling and reporting single audit results
centrally could reveal or confirm the existence of internal control and
other problems. It can help strengthen accountability and oversight by
providing management with information useful in the analyses of both
programwide problems and recurring problems at specific recipients.
Further, it can provide management officials with information relevant
to agency efforts to reduce improper payments – a key element of The
President‘s Management Agenda, Fiscal Year 2002, initiative to improve
financial performance. Our analysis of the Federal Audit Clearinghouse
(FAC) single audit database information[Footnote 2] showed common types
of findings at award recipients for several years and that individual
recipients continued to have similar and recurring audit findings. For
example, program eligibility and allowable costs findings were both
repeat problems over a 3-year period for some recipients and were
problems for several recipients in our sample.
To help ensure the effective implementation of the Single Audit Act and
that recipients correct the weaknesses identified in single audit
reports, we recommend that the Secretary at each of the three agencies
develop and ensure the implementation of single audit guidance that
meets all OMB Circular A-133 requirements. We also recommend that the
Secretary at each of the agencies implement policies and procedures for
reporting information to agency management on (1) the types and causes
of findings identified in single audit reports and (2) the status of
corrective actions. This information could be useful in evaluating
agency efforts to ensure that recipients correct audit findings and
identifying programwide and recipient-specific problem areas needing
management attention.
In commenting on this report, Education and HUD agreed with the
findings and recommendations. They provided several editorial and/or
clarification changes and supplemental information that we considered
and included in the report, as appropriate. Transportation‘s comments
raised several issues concerning both the scope of our audit work and
the appropriateness of our conclusions and recommendations. Despite the
comments and the issues they raised, we continue to believe that our
conclusions are sound and that the recommendations for agency actions
are needed to help ensure the overall effectiveness of agencies‘
implementation of the Single Audit Act and of their consideration and
use of single audit findings. The ’Agency Comments and Our Evaluation“
section of this report provides more detailed information on each
agency‘s comments on a draft of this report, which are reprinted in
appendixes I through III.
Background:
The Single Audit Act is intended to, among other things:
* promote sound financial management, including effective internal
controls, with respect to federal awards administered by nonfederal
entities;
* promote the efficient and effective use of audit resources; and;
* ensure that federal departments and agencies, to the maximum extent
practicable, rely upon and use single audit work.
The Single Audit Act requires state and local governments and nonprofit
organizations that expend $300,000 or more in federal awards in a fiscal
year to have either a single audit or program-specific audit conducted.
Federal awards include grants, loans, loan guarantees, property,
cooperative agreements, interest subsidies, insurance, food commodities,
and direct appropriations and federal cost reimbursement contracts.
The Single Audit Act also requires recipients to forward an audit
reporting package to the FAC for archival purposes and for distribution
to each federal agency responsible for programs for which the audit
report identifies a finding. The reporting package includes (1) the
recipient‘s financial statements and schedule of expenditures of
federal awards, (2) a summary schedule of prior audit findings,
including the status of all audit findings included in the prior
audit‘s schedule of findings and questioned costs for federal awards,
(3) the auditor‘s opinion on the recipient‘s financial statements and
schedule of expenditures of federal awards, reports on internal control
and compliance with laws, regulations, and provisions of contracts or
grant agreements, and (4) a schedule of findings and questioned costs.
Single audits are a key control for the oversight and monitoring of
recipient use of federal awards. Federal agency actions to ensure that
award recipients address audit findings contained in single audit
reports are a critical element in the federal government‘s ability to
efficiently and effectively administer federal awards. These findings
can include internal control weaknesses; material noncompliance with
the provisions of laws, regulations, or grant agreements; and fraud
affecting a federal award.
The President‘s Management Agenda, Fiscal Year 2002, identifies the
need to reduce improper payments as a significant element of the
Administration‘s initiative to improve financial performance throughout
the
government. Single audits can have an impact on the government‘s efforts
to address improper payments since many of the programs experiencing
improper payments are audited as part of the over 30,000 single audits
conducted annually. For example, recent estimates by the departments of
Agriculture and HUD identified about $976 million and $2 billion in
improper payments in food stamps and housing subsidy programs,
respectively. These programs are often audited as part of a single
audit.
Objectives, Scope, and Methodology:
Our objectives were to determine what program managers for six large
programs, two each at Education, HUD, and Transportation, do to (1)
ensure that federal award recipients correct the current year and
recurring findings identified in single audit reports and (2) summarize
and communicate single audit results and actions taken to correct audit
findings to agency management for its use in evaluating agency oversight
and monitoring of recipient performance and in identifying programwide
and recipient-specific problem areas needing management attention. We
selected these agencies because they are three of the four federal
agencies that provide the largest amount of federal awards to state and
local governments and nonprofit organizations. OMB documents show that,
in fiscal year 2001, these agencies made grants totaling $84 billion to
state and local governments. We did not include the Department of
Health and Human Services, the agency with the largest amount of
federal awards, in this review because of our current work[Footnote 3]
to evaluate the Centers for Medicare and Medicaid Services‘ (CMS)
efforts to monitor its financial oversight to help ensure the propriety
of Medicaid expenditures. That work included the review of single audit
reports for fiscal year 1999 and found that the correction of audit
findings and monitoring of CMS and its regional offices were limited
and audit resolution activities were inconsistently performed across
regions.
To assess how program managers ensure that federal award recipients
corrected problems discussed in single audit reports, we reviewed the
Single Audit Act, OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, and the Comptroller
General‘s Standards for Internal Control in the Federal Government to
identify agency responsibilities for correcting single audit findings.
This review identified the following three areas of responsibility,
which represent the criteria we used in making our assessment.
* Obtain single audit reports and distribute them to agency officials
responsible for reviewing the report findings and taking actions on
those findings.
* Issue written management decisions on audit findings within 6 months
of the receipt of the audit report to notify recipients of actions the
federal agency considers necessary to correct the audit findings.
* Follow up with award recipients to ensure that corrective actions
occurred.
The FAC single audit database was established as a result of the Single
Audit Act Amendments of 1996 and contains summary information on the
auditor, the recipient and its federal programs, and the audit results.
We did not independently test the reliability of the database. However,
at OMB‘s request, the Office of the Inspector General (OIG) at the
Department of Commerce reviewed the database to assist OMB, the Census
Bureau, and other users in assessing the accuracy of the fiscal year
1998 audit report information in the database. We reviewed the OIG‘s
sampling methodology, monitored the audit scope and the progress of the
review, and discussed the results with OMB and OIG officials. We
concluded that the database for calendar year 1999 was reliable and
adequate for our sampling purposes.
At each agency, we identified two large award programs and queried the
FAC single audit database for calendar year 1999 single audit reports
[Footnote 4] to determine the 10 grantees receiving the largest amount
of funding for each program. The programs identified for review were
Title I[Footnote 5] and Pell Grants[Footnote 6] at Education, the
Community Development Block Grant[Footnote 7] (CDBG) entitlement and
Section 8 Tenant-Based[Footnote 8] (Section 8) programs at HUD, and
Capital Investment and Formula Grants[Footnote 9] (CIFG) and Highway
Planning and Construction Grants[Footnote 10] (HPCG) at Transportation.
For each grantee identified above, we queried the FAC single audit
database to identify audit findings in the programs selected. The query
identified 246 audit findings.
We interviewed agency officials and reviewed agency guidance to
determine their procedures for ensuring that audit findings are
communicated to appropriate officials and/or offices for action and
assessment of recipients‘ corrective actions. We also provided each
agency with a list of the audit reports and findings selected for
review. For each finding, we requested documentation including written
management decisions and evidence of agency follow up with recipients
on the corrective actions taken and the appropriateness of those
actions. We interviewed agency officials and reviewed the management
decisions and documentation provided on agency follow up on recipient
corrective actions.
Reporting single audit results and recipient actions to correct audit
findings to agency management provides management with valuable
information for use in assessing program risks and identifying areas
needing action. To determine whether and how the three selected
agencies summarized and communicated the single audit results and
actions to correct audit findings to agency management, we interviewed
officials at the three agencies to determine the reports generated to
inform agency officials of the single audit results.
We conducted our review from October 2001 through March 2002 in
accordance with generally accepted government auditing standards.
Agencies‘ Efforts to Ensure That Single Audit Findings are Corrected:
Education, HUD, and Transportation had procedures in place that
established responsibility for obtaining, distributing, and reviewing
single audit findings and for communicating that information to
appropriate officials for action. However, although required by OMB
Circular A-133, agencies often did not issue written management
decisions or have documentary evidence of their evaluations of and
conclusions on recipient actions to correct the audit findings.
Guidance Existed for Obtaining Single Audit Reports and Distributing
Reports to Appropriate Officials:
If federal agencies are going to take action on single audit findings,
they must first obtain the single audit reports or other documentation
containing single audit findings relating to their programs and
distribute this information to appropriate offices for action. The
three agencies in our review had procedures for obtaining single audit
reports and for distributing audit finding information to appropriate
agency offices.
Receipt and Distribution of Single Audit Findings - Education:
At Education, different offices receive and distribute single audit
reports or audit findings. For example, the Office of the Chief
Financial Officer‘s (OCFO) audit resolution coordinator receives copies
of single audit reports with Title I program findings from the FAC and
distributes audit finding information to the Office of Elementary and
Secondary Education (OESE). OESE is responsible for the overall
administration of the Title I program and resolving the audit findings
and following up on corrective actions. The Office of Student Financial
Assistance (OSFA) administers the Pell Grant program. OSFA receives
copies of the single audit reports with Pell Grant findings directly
from the FAC and distributes copies of the reports to the appropriate
Pell Grant program offices for action.
Receipt and Distribution of Single Audit Findings - HUD:
Although the FAC provides copies of single audit reports containing HUD
program audit findings to the OCFO, officials responsible for the CDBG
and Section 8 programs stated that their offices did not use those
reports to identify single audit reports with findings. Rather, they
obtained copies of single audit reports and/or audit finding
information relating to their programs from other sources, including
the award recipients and a HUD database developed by its Real Estate
Assessment Center (REAC). OCFO officials noted that the office
considers these procedures more efficient than having OCFO personnel
review each single audit report, identify audit findings, and
distribute those findings to the appropriate HUD offices.
To identify CDBG findings, the Office of Community Planning and
Development (CPD) tasks its 42 field offices with identifying award
recipients whose single audit reports contained CDBG-related audit
findings. An August 2000 CPD memorandum instructed field offices to
query the FAC single audit database to identify single audit reports
containing audit findings related to the CDBG program and to obtain
copies of these single audit reports directly from the federal award
recipients. To perform this task, the field offices use award documents
and other agency reports to identify award recipients for which they
have oversight responsibility. They then query the FAC single audit
database to identify those recipients whose single audit reports
contain findings and obtain copies of those reports directly from the
recipients.
For the Office of Public and Indian Housing (PIH), program managers
located in 43 PIH field offices generally obtain audit finding
information for the Section 8 program from HUD‘s REAC database.
Recipients electronically submit financial and compliance information,
which is excerpted from single audit reports, directly into the REAC
system for REAC analysis. According to HUD officials, this database
contains information including the financial statements, notes to the
financial statements, the schedule of expenditures of federal awards,
the type of audit opinion, an identification of audit findings, and
recipient corrective action plans. Findings that are in noncompliance
with HUD regulations and agreements are referred to the HUD
Departmental Enforcement Center for processing and follow up. PIH
officials stated that the REAC database covers about 75 percent of the
Section 8 program recipients and that program managers responsible for
overseeing federal award recipients not covered by REAC could query the
FAC single audit database to identify other single audit reports with
findings. Once program managers identify reports with findings, they
obtain copies of the single audit reports directly from the recipients.
PIH is in the process of developing single audit guidance that it plans
to issue during the summer of 2002.
Receipt and Distribution of Single Audit Findings - Transportation:
The OIG receives single audit reports from the FAC and decides which
single audit findings should be formally addressed by the Operating
Administrations based on a number of factors. These factors include the
dollar amount of expenditures, the number of federal award findings
identified by the auditor, and the type of finding identified. Based on
its decisions, the OIG sends ’action“ memoranda to the program field
offices informing them of the single audit findings that require action
and a response to the OIG. The OIG uses ’informational“ memoranda to
inform the program field offices of single audit findings for which the
OIG does not require a formal response. Although the OIG does not
require a formal response on the ’informational“ memoranda, agency
officials stated that they expect the field offices to ensure that
recipients correct all findings, irrespective of the type of memorandum
used to communicate the findings. An agency official noted that they
developed this method of addressing audit report findings because they
consider many findings insignificant and follow up by OIG officials is
not an effective use of resources.
Written Management Decisions Generally Not Prepared:
Our review found that the audit files at the three agencies contained
written management decisions for 75 (about 30 percent) of the 246
findings. OMB Circular A-133 requires federal agencies to issue written
management decisions on the audit findings contained in single audit
reports within 6 months of receiving the recipient‘s single audit
report. The management decisions should describe the corrective actions
agencies consider necessary based on their evaluation of the audit
findings and corrective action plans contained in the single audit
reporting package. Since federal agencies are responsible for ensuring
that the recipients implement adequate corrective action, it is
important for management to clearly communicate the agency‘s
expectations and time frames for action through management decisions.
The issuance of a management decision is also critical because, based on
OMB Circular A-133, award recipients may consider an audit finding
invalid and not warranting further action if all the following have
occurred:
* a management decision was not issued;
* 2 years have passed since the audit report in which the finding
occurred was submitted to the FAC, and;
* the federal agency or pass-through entity[Footnote 11] is not
currently following up with the recipient on the audit finding.
As shown in table 1, the audit files reviewed contained documentation
evidencing management decisions for 75 of the 246 audit findings
contained in our sample audit reports.
Table 1: Number of Audit Findings with Documented Management Decisions:
Agency/program: Education/Pell Grant;
Audit findings: 66;
Management decisions: Documented: 53;
Management decisions: Not documented: 13.
Agency/program: Education/Title I;
Audit findings: 47;
Management decisions: Documented: 13;
Management decisions: Not documented: 34.
Agency/program: HUD/Community Development Block Grants (CDBG);
Audit findings: 37;
Management decisions: Documented: 3;
Management decisions: Not documented: 34.
Agency/program: HUD/Section 8;
Audit findings: 48;
Management decisions: Documented: 2;
Management decisions: Not documented: 46.
Agency/program: Transportation/Capital Investment and Formula Grants
(CIFG);
Audit findings: 17;
Management decisions: Documented: 4;
Management decisions: Not documented: 13.
Agency/program: Transportation/Highway Planning and Construction Grants
(HPCG);
Audit findings: 31;
Management decisions: Documented: 0;
Management decisions: Not documented: 31.
Agency/program: Total;
Audit findings: 246;
Management decisions: Documented: 75;
Management decisions: Not documented: 171.
[End of table]
Agency officials noted several possible reasons that management
decisions were not prepared and available for our review including:
* the findings were insignificant and did not require further action;
* follow up with recipients was performed but not documented;
* the audit report that identified the finding also indicated that the
recipient had corrected the audit finding as of the report issuance
date, and;
* subsequent audit reports were reviewed to determine if the finding had
been corrected.
The audit files generally did not contain an indication that agency
officials considered any of these four factors or used them as a
justification for not preparing the required management decisions.
Since it is the federal agency‘s responsibility to ensure that
corrective action implemented by the recipient will correct a finding,
the agency should be on record as agreeing with the recipient‘s planned
or completed corrective actions or pointing out other actions needed to
correct the findings. In our view, none of the reasons cited justify
the nonissuance of a management decision. For example, by including a
finding in a single audit report, auditors are indicating that the
finding is significant since government auditing standards require
auditors to report all significant findings in the report. The
standards identify other means of communicating insignificant findings.
Regarding the use of subsequent-year single audit reports to justify
the nonissuance of a management decision, it should be noted that
single audit reports must be issued no later than 9 months after the
recipient‘s year-end. By waiting for the subsequent year‘s audit
report, as many as 21 months could have expired from the end of the
audit period for which the finding was initially reported to the
receipt of the subsequent year‘s audit report. In our opinion, waiting
for the subsequent audit report would not result in a timely
notification to the recipient of the agency‘s position on an audit
finding and the recipient‘s planned, in progress, or completed
corrective actions.
The following section provides more detailed information on the results
of our review of management decisions.
Management Decisions - Education:
Our review of the audit files for the 113 Title I and Pell Grant audit
findings at Education revealed that 66 of the findings had documented
management decisions. Of the 47 with no written management decisions,
25 were in the Cooperative Audit Resolution and Oversight Initiative
(CAROI) process, which is discussed in more detail below.
When either the OESE or Pell Grant program offices receive single audit
findings, special teams assess the seriousness of the audit findings to
determine the amount of attention needed for resolution. According to
draft Education guidance, Post Audit User Guide, which has been in
effect since 1987 and has been periodically updated, the purpose of this
assessment process is to promote the most efficient use of external
audits to assist management in achieving program goals and discharging
its fiduciary responsibilities. The teams evaluate the audit findings
based on criteria established in the draft guidance, which states that
audit findings may be addressed using three approaches -- full
resolution, abbreviated resolution, or technical assistance. The
principle criteria used in evaluating each finding and determining the
resolution approach is the seriousness of the finding, that is, the
monetary or program compliance issues identified or the recurring
nature of the finding. Full and abbreviated resolution approaches
require written notification to the recipient. The guidance states that
resolution by technical assistance does not require a written
management decision. However, it does require that all communication
with the auditee in the resolution of an audit finding using the
technical assistance approach be documented and available in the audit
file.
Education has also developed a process to facilitate management
decisions on complex audit issues affecting multiple programs. This
process, CAROI, uses a collaborative approach to resolve audit findings
and their underlying causes. During the CAROI process, representatives
from Education‘s program and OIG offices work collaboratively with
state and local program managers to address complex audit findings
affecting multiple programs. An agency official noted that the process
may not be completed in the 6-month management decision time frame set
forth in OMB Circular A-133. For those findings in our sample being
addressed using the CAROI process, the 6-month requirement was not met.
It should be noted, however, that an Education report[Footnote 12]
stated that CAROI projects have had a positive impact in reducing
recurring findings identified in statewide audits.
Of the 25 single audit findings with no management decisions that are
in the CAROI process, 22 relate to one recipient. Education officials
told us that they are working with other federal agencies, including
the Department of Justice, on fraud and other program-related issues
involving this recipient.
Regarding the remaining 22 findings with no written management
decisions, officials stated that, depending upon the approach the
review team determined appropriate for the audit finding, program staff
may have followed up with recipients but not prepared a management
decision. They noted that, although no record of these discussions was
in the audit files, this could have been the case for at least some of
the 22 audit findings.
OMB Circular A-133 requires that management decisions clearly state
whether or not the federal agency sustains the audit finding, the
reasons for the decision, the expected corrective action, and that they
describe any appeal process available to the recipient. Further, the
Circular requires that, if the recipient has not completed corrective
action as of the management decision date, the decision should give a
timetable for this action. For the 66 findings with written management
decisions, our review showed that the management decisions often did
not contain all of the elements required by OMB Circular A-133. For
example, 5 of the Title I management decisions and 25 Pell Grant
management decisions did not include a timetable for follow up on the
implementation of corrective action. Further, 3 of the Pell Grant
findings did not include expected action to correct the findings.
Management Decisions - HUD:
HUD files contained only five written management decisions for the 85
CDBG and Section 8 program audit findings we reviewed. The audit files
contained three written management decisions for the 37 CDBG audit
findings. Fifteen of these findings were first-time findings and 22 were
recurring findings. Of the recurring findings, 16 related to one
recipient. Further, only two of the 48 Section 8 findings had written
management decisions. Of these findings, 16 were first-time findings
and 32 were recurring findings. Eighteen of the recurring findings were
for one recipient. This recipient has been identified as having
multiple internal control issues related to HUD and other federal
agencies that require coordination with the OIG and other federal
agencies. HUD officials stated that they were continuing to work with
the recipient to resolve these issues.
Officials from both the Offices of Community Planning and Development
and Public and Indian Housing noted that one possible reason for the
lack of a written management decision was that program personnel
reviewed the subsequent year‘s single audit reports and determined that
no further action was necessary based on the status of corrective
actions as cited in the report. Our review of the calendar year 2000
audit reports indicated that 27 (13 CDBG and 14 Section 8) of the 85
findings in our sample had been corrected. Therefore, this possibility
did not account for most of the instances of missing management
decisions. Further, as noted earlier, agencies generally receive
subsequent single audit reports well after the 6-month time frame
within which management decisions are required. So, at a minimum, the
agency did not comply with OMB Circular A-133 timing requirements for
the issuance of management decisions.
Like Education, HUD‘s management decisions did not include all OMB
Circular A-133-required information. For example, two of the three CDBG
program management decisions did not include a timetable for follow up.
In response to our work, HUD‘s Office of Community Planning and
Development issued Field Guidance on Single Audit Act Requirements (CPD
Field Guidance) on March 13, 2002. This guidance contains requirements
outlined in OMB Circular A-133, including the requirements that
management decisions clearly state whether or not the audit finding is
sustained, the reasons for the decision, and the expected grantee
action. If the recipient has not completed corrective action, the
guidance requires that the field offices establish a timetable for
follow up. Finally, the guidance requires that management decisions
describe the appeal process available to the recipient. In issuing this
guidance, CPD referred to our review as showing that more detailed
guidance was needed to help ensure that CPD properly carries out its
oversight responsibilities. This guidance is a positive step toward
ensuring that management decisions are issued for all audit findings
related to the CDBG program. According to PIH officials, they plan to
issue guidance covering the process for correcting audit findings
contained in single audit reports in the summer of 2002.
Management Decisions - Transportation:
Transportation files contained only four written management decisions
for the 48 CIFG and HPCG audit findings we reviewed, all of which
related to the 17 CIFG findings. Transportation guidance requires each
Operating Administration to establish a system to ensure prompt
responses to audit reports and implementation of audit recommendations.
The guidance requires that the system provide for a complete record of
actions taken on audit recommendations. Transportation assigns program
managers in field offices the responsibility for preparing management
decisions and following up on corrective action for those findings
addressed in OIG ’action“ memoranda. Despite this guidance, we found
few written management decisions in the audit files reviewed.
The OIG issued ’action“ memoranda for 4 of the 17 CIFG findings.
Management decisions existed for 2 of these findings, 1 of which
involved questioned costs of over $300,000 and for which the single
audit report noted that corrective actions had been completed. The
other 2 management decisions involved audit findings for which the OIG
had issued ’informational“ memoranda. Further, of the 31 HPCG findings,
the OIG issued two ’action“ memoranda that addressed 10 findings. The
audit files did not contain written management decisions for these
findings.
Our review of the management decisions to determine if they contained
all OMB Circular A-133-required elements revealed that none of the four
Transportation management decisions did so. For example, they did not
contain information on the reason for the decision to sustain or not
sustain the audit finding or a description of the appeals process.
Follow Up Needed to Ensure Completion of Corrective Actions:
Program officials at the three agencies told us that they follow up on
the implementation of corrective actions through site visits, telephone
conversations, and review of subsequent single audit reports. Although
the audit files contained some information relating to corrective
actions, we found very little documentation identifying program or
field office evaluations of and conclusions on the adequacy of the
corrective actions taken by recipients. OMB Circular A-133 requires
agencies to provide the recipient with a timetable for implementing
corrective action and to ensure that the award recipient takes
appropriate and timely corrective actions. The Comptroller General‘s
Standards for Internal Control in the Federal Government states that
agency efforts to monitor internal controls should include policies and
procedures for ensuring that the findings of audits and other reviews
are promptly resolved. The lack of documentation makes it difficult for
management to ensure that program offices and award recipients are
meeting their audit finding-related responsibilities in an appropriate
and timely manner.
Corrective Action Follow Up - Education:
Our review of the audit files for the 47 Title I and 66 Pell Grant audit
findings showed that 5 Title I and 25 Pell Grant files did not contain
documentation of follow-up actions. Education‘s program managers
responsible for the Title I and Pell Grant programs stated that they
verify that corrective action was implemented using site visits and
subsequent single audit reports. Education‘s draft guidance requires
program officials to maintain accurate records of all audit follow-up
activities, including all correspondence, documentation, and analysis
of the documentation. Based on our audit file review, we were unable to
verify that the agency had evaluated and concluded on the adequacy of
the recipient‘s corrective actions.
Corrective Action Follow Up - HUD:
Our review of 85 single audit findings for the CDBG and Section 8
programs identified documentation of follow up for 28 of the findings.
For example, the audit files contained evidence of a review of
subsequent single audit reports for 14 findings and of follow up with
the recipient and determination that the audit finding was resolved for
4 findings.
CPD and PIH officials advised us that program managers located in field
offices are tasked with following up with recipients on audit findings
contained in single audit reports. They told us that these offices used
various procedures, including contacting the federal award recipients
concerning the audit findings and corrective actions and reviewing the
status of the audit findings in the subsequent single audit reports, to
determine if the audit findings were corrected. If considered
appropriate, field offices might also conduct on-site monitoring visits
at the award recipients. While field office staff may have actively
followed up on findings, our review of audit files provided by field
office locations showed evidence of follow up or monitoring for only 28
of the 85 findings.
The March 2002 CPD Field Guidance requires each field office to maintain
files that contain all audit-related communications with the CPD award
recipients, including any appropriate reports from the FAC, audit
reports, and, if applicable, the auditor‘s management letter.[Footnote
13] As noted above, PIH officials stated that they also plan to issue
guidance in the summer of 2002 covering the process for correcting
audit findings contained in single audits.
Corrective Action Follow Up - Transportation:
Our review of documentation provided by Transportation for the 17 CIFG
and 31 HPCG audit findings revealed little evidence of follow-up
activity in the audit files. Although these files contained some
information relating to corrective actions, they generally did not
contain documentation identifying agency evaluations of and conclusions
on the adequacy of the corrective actions taken by recipients. Without
documentation that corrective action is appropriate, timely, and
implemented, management cannot be sure that program offices and award
recipients are meeting their audit finding-related responsibilities.
During discussions with field office program managers, we determined
that follow-up activities vary widely. For example, personnel in one
field office told us that the office follows up with the recipient to
ensure that corrective action has been implemented and that follow up
is tracked and documented using an automated system. Other field office
program managers told us that they review the subsequent year‘s single
audit report to determine if the deficiency has been corrected and may
verify that corrective action has been implemented during site visits
to the recipient. However, the audit files reviewed did not contain
evidence of agency evaluations of or conclusions on the adequacy of
recipient actions to correct audit findings.
Audit follow-up guidance issued by the Office of the Secretary in 1989
requires each Operating Administration to establish a system to ensure
prompt responses to audit reports and the implementation of audit
recommendations and further states that the system must be capable of
reporting in a timely and uniform manner in order to meet information
and reporting requirements. Transportation‘s current guidance, which it
issued in March 2000, makes no mention of several OMB requirements
included in earlier agency guidance, including the contents of
management decisions, timely responses to audit reports and follow up
procedures, and maintaining records of follow-up actions.
Single Audit Results are Not Communicated to Agency Management:
Based on discussions with officials at the three agencies, none of the
program offices with management decision preparation and corrective
action responsibilities reported single audit results or recipient
actions to correct single audit findings to agency management. Although
neither the Single Audit Act nor OMB Circular A-133 requires this
reporting, the Comptroller General‘s Standards for Internal Control in
the Federal Government note that agency officials, program managers,
and others responsible for managing and controlling program operations
need relevant, reliable, and timely information to make operating
decisions, monitor performance, and allocate resources.
Discussions with officials at each of the three agencies revealed that,
even when program or other offices have information on single audit
results and recipient actions to correct single audit findings, this
information is not communicated to agency management for review,
analysis, and possible action.
* Although officials at Education‘s OCFO told us that their audit
resolution tracking system was capable of reporting on the status of
single audit findings, no reporting to Education management occurred.
* According to an OCFO official at HUD, the various program offices
within HUD do not prepare reports on the status of audit findings
contained in single audit reports.
* At Transportation, the OIG reports unresolved and incompletely
corrected single audit findings in its semi-annual report to the
Congress. However, the report does not include information on all
single audit findings, since the OIG only tracks findings for which it
issues ’action“ memoranda, and the report contains only general
information and no specific details on the nature and extent of single
audit findings.
Information for such management reporting can come from many sources
including agency analyses of single audit findings and agency databases,
such as HUD‘s REAC database. Another valuable source of information is
the FAC single audit database. This database consists of information
obtained from a data collection form that recipients send to the FAC as
part of their single audit reporting package. It contains summary
information on the auditor, the recipient and its federal programs, and
audit results. The database contains about 4 years of information on
over 30,000 annual single audit reports. The various data query options
available provide potential users, including program managers,
auditors, and other interested parties, with significant amounts of
readily available information on grant recipient financial management
and internal control systems and on compliance with federal laws and
regulations.
To determine the types and frequency of audit findings at the six
programs in the three agencies included in our review, we queried the
FAC single audit database and reviewed the sample single audit reports
to determine if the grantees in our selection had similar types of
audit findings. Our query showed that similar audit findings were
reported for grantees in each of the programs. For example, 33 of the
66 audit findings we reviewed for the Pell Grant program were
attributable to grantees‘ noncompliance with special tests and
provisions applicable to the program. These findings typically involved
situations where colleges or universities were unable to provide
documentation to show that students receiving federal aid attended
class. For Title I programs, 11 of the 47 audit findings reviewed were
attributable to grantees‘ noncompliance with allowable costs provisions
specified in the grant. Further, our query showed 16 of the 37 audit
findings for recipients of HUD‘s CDBG program were attributable to
noncompliance with the grants reporting requirements, and 18 of the 48
HUD Section 8 program audit findings were attributable to grantees‘
noncompliance with the special test and provisions requirements of the
Section 8 grants.
We also queried the FAC single audit database to determine if any of the
programs selected for review had recurring types of audit findings. We
found several instances in which single audit reports contained types of
audit findings that were repeated in 3 or more consecutive years. For
example, 4 of the 10 Education Pell Grant recipient reports identified
eligibility findings that repeated in 3 or more consecutive years. For
the Title I program, 4 grantees had subrecipient monitoring findings
that repeated in 3 or more consecutive years. At HUD, a review of the
database and single audit reports showed that 15 of the 37 CDBG audit
findings were not corrected over a period of 3 successive years. Twelve
of these 15 recurring audit findings occurred at one recipient. The
remaining 3 recurring audit findings occurred at three other
recipients. In addition, CDBG and Section 8 grants also had recipients
with audit findings attributable to reporting, allowable costs, and
eligibility that were repeated in 3 or more subsequent years.
Transportation recipients selected for review had cash management,
subrecipient monitoring, allowable costs, and equipment and real
property management findings that were repeated in 3 or more years at
individual recipients.
This type of information could be a valuable tool in improving grants
management by helping management evaluate agency oversight and
monitoring activities and identify problem areas. It could also assist
in setting priorities for actions needed to correct program problems. In
addition, it can provide agencies with information needed to help them
accomplish their responsibilities as established by The President‘s
Management Agenda, Fiscal Year 2002, initiative to reduce improper
payments in federal programs.
Conclusions:
The first step in an agency‘s efforts to address single audit findings
is obtaining single audit reports and distributing them to agency
officials responsible for reviewing the report findings and taking
actions on those findings. Each of the three agencies in our review had
procedures for communicating audit reports and/or audit finding
information to program or field offices for action.
OMB Circular A-133 requires agencies to prepare written management
decisions on audit findings contained in single audit reports. Our
review of the audit files at the three agencies found that they issued
written management decisions for only 75 of the 246 audit findings
contained in the single audit reports included in our review. The
agencies noted several reasons for not preparing written management
decisions, including (1) the audit findings were considered
insignificant or not serious, (2) follow up with recipients was
performed but not documented, (3) the single audit report stated that
the recipient had corrected the finding prior to the report‘s issuance,
and (4) the subsequent year‘s single audit report indicated that the
recipient had corrected the finding. In our view, none of these reasons
justify the nonissuance of a management decision. Further, the audit
files generally did not contain any evidence that agency officials
considered these factors or otherwise considered the preparation of
management decisions.
Education, HUD, and Transportation do not adequately document their
evaluations of and conclusions on the corrective actions taken by
recipients to correct single audit findings. While the audit files
contained copies of recipient documents and other records, they
generally did not contain agency evaluations of or conclusions on the
adequacy of the recipient actions cited in those records. This
documentation is critical because each agency relies heavily on
program, regional, or field offices to ensure that corrective actions
occur and none requires reporting on the corrective action status on
all findings contained in single audit reports. Therefore, requiring
documentation can help ensure that these offices perform their
responsibilities in ensuring that recipients take all necessary
corrective actions.
Through discussions with agency officials, we determined that none of
the agencies report single audit results or the status of single audit
findings and implementation of action to correct deficiencies to agency
management. This reporting can strengthen accountability and oversight
by providing management with information useful in the analyses of both
programwide problems and recurring problems at specific recipients.
Further, because many federal programs that are subject to single
audits also experience improper payments, this reporting can be useful
to agency management in addressing the requirements established in The
President‘s Management Agenda, Fiscal Year 2002, for reducing such
payments.
Recommendations for Executive Action:
To ensure that recipients correct the weaknesses identified in single
audit reports, we recommend that the Secretary for the departments of
Education, HUD, and Transportation ensure that each has established and
follows guidance that addresses the OMB Circular A-133 requirements for
all agency programs whose awards are subject to the Single Audit Act.
This guidance should clearly define the roles and responsibilities of
each agency unit in ensuring appropriate and timely actions on single
audit findings including:
* preparing and issuing management decisions that clearly communicate
the results of agency analyses of single audit findings and the adequacy
of corrective actions implemented or planned by the recipient;
* performing follow up procedures to ensure that the recipient
implemented adequate corrective action, and;
* documenting results of evaluations of and conclusions on recipients‘
actions to correct audit findings.
We also recommend that the Secretary of each of the three agencies
implement policies and procedures for reporting information to agency
management on (1) the types and causes of findings identified in single
audit reports and (2) the status of corrective actions.
Agency Comments and Our Evaluation:
Education agreed with the thrust of the report‘s findings and
recommendations. Its comments (reprinted in appendix I) noted that it is
important to ensure that recipients correct the weaknesses identified in
single audit reports and that the department takes the necessary steps
to ensure the implementation of single audit guidance as required under
OMB Circular A-133. An attachment to the comments, which is not
reprinted, provided several clarification points and suggested
additions to the report, which we considered and included in the
report, as appropriate.
HUD agreed with the report‘s findings and recommendations. Its comments
(reprinted in appendix II) described actions that HUD is taking to
improve its oversight and use of single audits to strengthen its program
compliance and performance. They also contained several minor technical
or editorial revisions that we considered and included in the report, as
appropriate.
The Department of Transportation‘s comments (reprinted in appendix III)
raised several issues about the scope of our audit work, the conclusions
reached, and the recommendations made.
* Transportation questioned our audit scope and suggested that we
should have conducted independent field testing to determine the extent
and effectiveness of recipient actions taken. Our objective was to
determine what agencies do to ensure that recipients take timely and
appropriate action; not to independently reperform the steps that
program and other offices, as applicable, would need to do to evaluate
recipient corrective actions. To accomplish our objective, we examined
agency audit files to determine the extent to which those files
contained evidence of agency actions to ensure that recipients had taken
appropriate and timely corrective actions on all audit findings. As we
noted in the report, the audit files generally did not contain evidence
of these actions either through written management decisions or through
documentary evidence of agency evaluations of or conclusions on
recipient corrective actions.
* Transportation noted that not all single audit findings are useful or
meaningful and that our report did not recognize this point. Two points
are relevant here. First, the Comptroller General‘s Government Auditing
Standards, which auditors performing single audits are required to
follow, requires auditors to ’report the significant audit findings
developed in response to each audit objective.“ The standards also note
that audit findings not reported, because of their insignificance,
should be separately communicated to the auditee. The auditors included
all of the findings discussed in our report in their single audit
reports. Our objective was not to evaluate the usefulness of audit
findings or whether auditors made the right determination as to
significance in including the 48 findings in the reports covered by our
review. Regarding the second point, the ’Management Decisions –
Transportation“ section of the report that we provided for comment
identified management decision information for findings addressed by
both ’action“ and ’informational“ memoranda. In using these different
memoranda, Transportation distinguished between serious or significant
and other types of findings. We did not separately judge or evaluate
the decision to use one or the other type of memoranda. However, OMB
Circular A-133 does not distinguish between the serious or other types
of audit findings. It clearly states that actions are required on all
audit findings.
* Transportation‘s comments also discussed the agency‘s process for
reviewing and tracking audit findings. They noted that the agency
tracks significant findings in the joint OIG/management tracking system
until documentation is provided that action has been completed and
stated that less significant actions are tracked locally. The draft
report we provided for comment generally contained this same information
and discussed the types of memoranda the agency used to communicate
single audit findings to appropriate agency offices. We do not take
issue with the agency‘s process. However, as our report states, our
review of audit files, irregardless of whether the agency handled the
audit findings with ’action“ or ’informational“ memoranda, found that
the files generally did not contain documentation identifying agency
evaluations of and conclusions on the adequacy of the corrective
actions taken by recipients.
* Transportation stated that our report recommends that each department
create a new system or systems for communicating audit findings to top
management. While our report recommends reporting to top management, it
also notes that information for such reporting can come from such
sources as agency analyses of single audit findings, agency databases,
and the FAC single audit database. We do not recommend or suggest that
agencies develop new systems. Agencies such as Transportation, that
uses a joint OIG/management tracking system for significant findings,
should use information obtained from that or other existing systems to
summarize single audit results and the status of recipient corrective
actions and communicate that information to top management.
The final agency comment notes that documentation concerns alone are
insufficient to demonstrate that agencies are ineffective at ensuring
that grantees achieve the changes recommended by single audits to
safeguard federal funds. Our report does not make the point that
agencies are ineffective if they do not maintain appropriate
documentation. Clearly, recipients can take timely and appropriate
action to correct audit findings without regard to federal agency
documentation that such action occurred. However, absent documentation
that timely and appropriate actions occurred, agency management would
have no basis for concluding that agency follow-up with recipients
occurred or that recipient corrective actions, if any, were timely and
appropriate.
We are sending copies of this report to the Ranking Minority Member,
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations, House Committee on Government Reform;
the Chairman and Ranking Minority Member, Senate Committee on
Appropriations; the Chairman and Ranking Minority Member, House
Committee on Appropriations; the Chairman and Ranking Minority Member,
Senate Committee on Governmental Affairs; the Chairman and Ranking
Minority Member, House Committee on Government Reform; the Chairman and
Ranking Minority Member, Senate Budget Committee; and the Chairman and
Ranking Minority Member, House Budget Committee. We are also sending
copies to the Director of the Office of Management and Budget and
agency CFOs and IGs. Copies of this report will be made available to
others upon request. This report will also be available on GAO‘s home
page [hyperlink, http://www.gao.gov].
Please call me at (213) 830-1065 or Tom Broderick, Assistant Director,
at (202) 512-8705 if you or your staff have any questions about the
information in this report. Key contributors to this report were Marian
Cebula, Cary Chappell, Mary Ellen Chervenic, Perry Datwyler, Taya
Tasse, and Jack Warner.
Sincerely yours,
Signed by:
Sally E. Thompson:
Director, Financial Management and Assurance:
[End of section]
Appendix I: Comments From the Department of Education:
United States Department Of Education:
Office Of The Chief Financial Officer:
400 Maryland Ave., S.W.
Washington, D.C. 20202-4300:
[hyperlink, http://www.ed.gov]
" Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation."
June 10, 2002:
Ms. Sally E. Thompson:
Director, Financial Management and Assurance:
U.S. General Accounting Office:
Washington, DC 20548:
Dear Ms. Thompson:
The Secretary has asked that I respond to your request for comments on
the GAO draft report entitled Single Audit: Actions Needed To Ensure
That Findings Are Corrected (GAO-02-705), which was transmitted to the
Department of Education on June 4, 2002.
We are pleased to note from your report that the Department is doing a
good job in carrying out its responsibilities under the Single Audit
Act. We know there is room for improvement. Let me state from the
outset that the Secretary and I are strongly committed to making
significant progress towards sound financial management and instituting
a Culture of Accountability within the Department of Education. Your
report is welcomed and will help us to make further improvements in our
ability to comply with responsibilities under the Single Audit Act.
We have long recognized the importance of single audits as a critical
management tool and, over the years, have adopted some unique and
innovative approaches. For example, as you have noted in your report,
the Cooperative Audit Resolution and Oversight Initiative (CAROI) is a
practical approach to addressing complex and recurring single audit
findings. Through CAROI, the Department works to bring all key
partners, both Federal and State, to the table to address audit
findings. We've had excellent results in resolving issues in a
meaningful and permanent way. One example is our collaborative effort
with the State of Pennsylvania. Over 120 findings, involving complex
and high dollar issues, were resolved in a relatively short period of
time. As a result of CAROI, Pennsylvania's subsequent single audit did
not contain any repeat findings. Another improvement in place is
"Triage," a process by which the Department assesses the seriousness of
single audit findings to determine the amount of attention needed for
resolution. We are committed to making additional improvements in the
Department's single audit process.
We agree with the general thrust of your findings and recommendations.
We believe it is important to ensure that recipients correct the
weaknesses identified in single audit reports and that the Department
takes the necessary steps to ensure the implementation of single audit
guidance as required under OMB Circular A-133.
We also concur with your recommendation that agency management be kept
apprised of single audit findings and grantee corrective actions. While
the Department could improve in this area by more effectively sharing
information centrally across program areas, this activity is in large
measure already taking place. Management issues hundreds of decisions a
year on single audit findings addressing program compliance
requirements. At ED, these decisions are made at the Assistant
Secretary's level. Thus, the Assistant Secretaries (or their designees)
are aware of and involved in addressing the compliance issues affecting
programs for which they are responsible. We also communicate to agency
management on repeat or serious audit findings through the CAROI and
Triage processes discussed above.
We are also attaching additional, more detailed comments and
clarifications for your consideration.
Thank you for the opportunity to comment. My staff and I, as well as
staff from Title I and the Office of Federal Student Aid (FSA), are
prepared to respond if you or your representatives have any questions.
Sincerely,
Signed by:
Jack Martin:
Attachment:
[End of section]
Appendix II: Comments From the Department of Housing and Urban
Development:
U.S. Department of Housing and Urban Development:
Office Of The Chief Financial Officer:
Washington, D.C. 20410-0100:
June 11, 2002:
Ms. Sally E. Thompson:
Director, Financial Management and Assurance:
U.S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Thompson:
Thank you for the opportunity to review and comment on the General
Accounting Office's (GAO) proposed report entitled Single Audit.
Actions Needed To Ensure That Findings Are Corrected (GAO-02-705). We
agree with the GAO's findings and recommendations pertaining to the
U.S. Department of Housing and Urban Development (HUD) and are taking
action to improve our oversight and use of single audits to strengthen
HUD's program compliance and performance. The following sections
provide our specific comments on GAO's recommendations and requests for
consideration of minor technical or editorial revisions.
HUD Comments on the GAO Recommendations:
Recommendation: The GAO recommends that "the Secretary for each of the
three agencies ensure that the agency has established and follows
guidance that addresses the OMB Circular A-133 requirements for all
agency programs whose awards are subject to the Single Audit Act."
Comments: We agree with this recommendation and are in the process of
developing Departmental guidance for all HUD program areas whose awards
are subject to the Single Audit Act. In addition, HUD's Office of
Public and Indian Housing (PITH) is in the process of preparing
guidance for its field office staff. This guidance will reflect the
requirements listed in OMB Circular A-133 for monitoring and follow-up
of single audit reports and management decisions. PITH will also update
its Monitoring Guidebook, which is currently being revised, to reflect
these requirements. The PITH guidance will be consistent with the HUD
Office of Community Planning and Development's (CPI)) field staff
guidance noted in the GAO audit report.
Recommendation: The GAO recommends that "the Secretary of each of the
three agencies implement policies and procedures for reporting
information to agency management on (1) the types of findings
identified in single audit reports and (2) the status of corrective
actions."
Comments: We agree with this recommendation, and have plans to assure
that a central single audit tracking system is available to cover all
HUD program activity. However, we believe a more cost effective and
efficient use of resources would be to enhance the Federal Audit
Clearinghouse (FAC) database system to produce finding reports and
corrective action tracking and status information, versus individual
agency systems efforts. Therefore, it is suggested that the second
sentence at the top of page 5 be reworded to read: "We also recommend
that the Federal Audit Clearinghouse provide the capability to easily
produce reports on (1) the types of findings identified in single audit
reports and (2) the status of corrective actions for use by agency
program managers." Additionally, we suggest that the first sentence
below the bullets on page 33 be reworded to read: "We also recommend
that the Federal Audit Clearinghouse provide a user-friendly capability
to report information by agency program on (1) the types...."
Other HUD Comments:
We request the GAO's consideration of the following clarifying or
editorial revisions to the final report.
1. On page 9, footnote number 8 refers to the Section 8 program and the
Office of Public and Indian Housing's (PIH) responsibility for overall
management. This statement is not accurate. P11-I has responsibility
for oversight and management of only the Section 8 Tenant-Based
programs, as was noted during the close-out meeting with GAO staff.
HUD's Office of Multifamily Housing has responsibility for the Section
8 Project-Based programs. Therefore, we believe a clarification to that
effect is necessary in this report to accurately depict the duties and
responsibilities of NH. Also, on page 9, last line above the footnotes,
please delete the "and" between "Development" and "Block" and add the
word "entitlement" after "(CDBG)."
2. On page 13, the report states that recipients electronically submit
financial and compliance data to REAC for database entry. REAC does not
perform database entries. Recipients input data into the REAC system.
The report failed to mention that recipients' submissions also include
the top-level financial statements (not just "financial statement
data"), notes to the financial statements, and the schedule of
expenditures of Federal awards. Therefore, we suggest adding the
following phrase at the end of the first sentence in the last
paragraph: "which includes all financial statements, notes to the
financial statements, and the schedule of expenditures of Federal
awards."
3. On page 14, the first line before the sentence that begins with "PIH
officials stated..." insert "Findings that are in non-compliance with
HUD regulations and agreements are referred to the HUD Departmental
Enforcement Center for processing and follow-up"
4. On page 21, second paragraph, the first sentence should be reworded
to delete "CDBG" and "Section 8" and state "Officials from both the
Offices of Community Planning and Development and Public and Indian
Housing noted...."
Again, the Department appreciates the opportunity to comment on this
proposed report before publication. If you have any questions, please
contact James M. Martin. Assistant Chief Financial Officer for
Financial Management, at (202) 708-0638.
Sincerely,
Signed by:
Angela M. Antonelli:
Chief Financial Officer:
[End of section]
Appendix III: Comments From the Department of Transportation:
U.S. Department of Transportation:
Assistant Secretary for Administration:
400 Seventh Street S.W.
Washington, D.C. 20590:
June 12, 2002:
Ms. Sally E. Thompson:
Director Financial Management and Assurance:
U.S. General Accounting Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Ms. Thompson:
The Department appreciates the opportunity to review the General
Accounting Office (GAO) draft report, "Single Audit: Actions Needed to
Ensure that Findings Are Corrected." The draft report findings and
recommendations are based primarily on incomplete paperwork that GAO
identified in agency single audit files. While examining agency files
relating to single audits is a useful first step for gauging agency
actions, it does not provide sufficient evidence to demonstrate whether
agencies are taking effective action with single audit findings. This
would require the draft report to go beyond the agency files and
evaluate the validity and potential utility of the single audit
recommendations and conduct independent field-testing to determine the
extent and effectiveness of actions taken.
The key to understanding agency actions on single audit findings is the
realization that not all single audit findings are useful or
meaningful, an issue missed in the draft report. Simply examining the
number of audit findings does not address the utility of findings, a
significant issue with single audits. For example, we routinely receive
single audit recommendations about separation of duties by grantees in
finance related areas. Separation of duties may not be possible for
small recipient organizations because there may only be one staff
person to cover multiple functions; however, accounting firms are
compelled to report such findings even though corrective action, such
as hiring additional staff, may not be cost effective. We did not
discern any evaluation regarding such quality issues involving audit
findings, or an attempt to sort out or prioritize single audit findings
in the GAO draft report.
The U.S. Department of Transportation has a logical process for
identifying audit findings, prioritizing its efforts, and determining
if the actions were taken. For perspective, it is important to realize
that in FY-2001 the Department provided about $30 billion in grant
assistance to State and local governments and transportation
authorities around the country. During the same period, we received
single audits with recommendations valued at about $10 million, or
about .03 of 1 percent of the total funds allocated. With the Office of
Inspector General's (OIG) assistance, each single audit report is
analyzed and evaluated against 10 criteria, including the dollar impact
of the finding, the finding's apparent significance, and whether the
grantee has already taken corrective action, to help prioritize
management actions in response to single audits. The reports are then
provided to modal field offices for appropriate action. Significant
findings are tracked in the Department's joint OIG/management tracking
system until documentation is provided that action has been completed.
Less significant actions are tracked locally, as we adhere to the
general tenet that it is unwise to spend more on corrective actions
than the sums identified as a result of the audit findings.
The report recommends that each Department create a new reporting
mechanism for communicating single audit findings to top management
based on the presumption that it could assist agencies in identifying
trends in single audit findings. In order for the GAO draft report to
construct a convincing case for creating such a system or systems, it
would need to present a sound cost benefit analysis. Further, since the
report identified common findings across agencies, it should consider
whether it makes sense to build a separate system at each Department or
whether it would be more efficient to create a single Governmentwide
system. Finally, the report would need to consider whether the Federal
Audit Clearinghouse system, which already enables reporting relative to
the type of audit findings associated with the 14 compliance supplement
requirements, could address this issue. We do not see evidence of any
such analyses in the draft report.
Overall, the Department tries to apply sensible good Government
principles to its implementation of the A-133 Single Audit program. We
approach these audits based on a logical system for prioritizing
action, work with grantees to ensure appropriate actions are taken, and
centrally track the priority audit findings through to completion.
While the documentation concerns noted in the draft report can be
addressed, documentation concerns alone are insufficient to demonstrate
that agencies are ineffective at ensuring grantees achieve the changes
recommended by single audits to safeguard Federal funding.
Again, we appreciate this opportunity to review and comment on the
draft report. Please contact Martin Gertel on 366-5145 with any
questions.
Sincerely,
Signed by:
Melissa J. Allen:
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Single Audit: Survey of CFO Act
Agencies, [hyperlink, http://www.gao.gov/products/GAO-02-376]
(Washington, D.C.: Mar. 15, 2002).
[2] The FAC single audit database was established as a result of the
Single Audit Act Amendments of 1996 and contains summary information on
the auditor, the recipient and its federal programs, and the audit
results.
[3] U.S. General Accounting Office, Medicaid Financial Management:
Better Oversight of State Claims for Federal Reimbursement Needed,
[hyperlink, http://www.gao.gov/products/GAO-02-300] (Washington, D.C.:
Feb. 28, 2002).
[4] We used calendar year 1999 single audit reports because that was
the most recent year for which all audit reports and agency responses
were available and it provided the most complete universe from which
our selection of audit findings could be made.
[5] The objective of Title I is to improve the teaching and learning of
children who are at risk of not meeting challenging academic standards
and who reside in areas with high concentrations of children from low-
income families.
[6] The objective of the Pell Grant program is to provide eligible
undergraduate postsecondary students who have demonstrated financial
need with grant assistance to help with expenses.
[7] The primary objective of the CDBG program is to develop viable
urban communities by providing decent housing, a suitable living
environment, and expanding economic opportunities, principally for
persons of low or moderate income.
[8] The primary objective of the Section 8 Tenant-Based program is to
assist very low income families in affording decent, safe, and sanitary
housing.
[9] The objective of the Capital Investment and Formula Grants is to
assist in financing the planning, acquisition, construction,
preventative maintenance, and improvement of facilities and equipment
in mass transportation services.
[10] The objectives of the Highway Planning and Construction Program
are to assist states in constructing and rehabilitating the National
Highway System, foster safe highway design, and replace or rehabilitate
unsafe bridges.
[11] OMB Circular A-133 defines a pass-through entity as a nonfederal
entity that provides a federal award to a subrecipient to carry out a
federal program.
[12] Department of Education, Management Challenges: Successes and On-
Going Efforts, (Washington, D.C.: June 2001 [hyperlink,
http:///www.Ed.Gov/Pubs/Planrpts] (downloaded May 24, 2002).
[13] The auditor‘s management letter contains findings that the auditor
did not consider significant enough to include in the audit report.
[End of section]
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