A few months ago, we posted an article about the proposed A-133 audit changes and the ultimate goals of the Federal grant policy reforms. Currently, any state or local government and nonprofit organization that receives money from the government may be required to obtain an A-133 audit (also known as an Office of Management and Budget or “OMB” A-133 audit). These audits ensure that government and nonprofit organizations are spending the money received from grants according to the various program requirements.
As we discussed a few months ago, the Office of Management and Budget has proposed some changes to the A-133 audit structure that could potentially impact nonprofit organizations. While the proposed changes could decrease the number of organizations required to undertake an A-133 audit, nonprofit organizations need to be prepared to determine what their specific funders will require in terms of any changes or additional procedures in response to the A-133 audit reforms.
What are the proposed changes?
As of February 2013, the Office of Management and Budget proposed that the annual spending threshold for federal funds that require nonprofit organizations to undergo an A-133 audit be raised from $500,000 to $750,000. Once an organization determines that they must undertake an A-133 audit, major programs over a certain threshold must undergo a compliance audit. . The proposed changes raise this threshold from $300,000 to $500,000.
In addition to these changes, the coverage rules for high risk and low risk audits are also changing. The “coverage” means the program dollars covered in the compliance audit as a major program. The proposal suggests reducing the coverage rules to 40% for high risk audits (down from 50%) and 20% for low risk audits (down from 25%). The Office of Management and Budget has also proposed to streamline the compliance testing areas from fourteen to six. This will help them focus on the areas of greatest risk and put a number of costs and administrative principle guides into one cohesive document.
When will these proposed changes take effect?
These changes are currently still in the proposal form. The comment period has been extended to June 2nd, meaning the earliest changes would be in effect staring June 1, 2014. This will give nonprofit and government organizations time to prepare for the upcoming changes.
What steps should my nonprofit take to prepare for these upcoming changes?
First of all, if your nonprofit organization has anything to say regarding these proposed changes, take advantage of the extended comment period. Then follow up with your major funders (including state, local and county agencies) to discuss the upcoming changes so there are no surprises. Ask your funders how they think they are going to respond to these changes and how that will affect your organization. Ask funders if they are planning to add additional requirements are part of their oversight. Getting all of the answers you can beforehand will help your organization in the future.
While your nonprofits costs may go down as a result of these changes, those costs may need to be reallocated. If your nonprofit organization is subject to an A-133 audit, the costs can be allocated to the federal portion of your budget. If those audit costs are coming from another source, you will need to talk to that organization and see where the allocation will be allowable. If a particular state is requiring any additions, the audit ought to be paid with state money.
Remember, these proposed changes do not mean that auditors will no longer be looking at your organization. Your organization will still have to comply with federal regulations, and there is always a chance that someone, at some time, will be looking at your organization’s financial accounts.
Stay tuned to our blog for more information about these proposed changes and how your organization can prepare for what is coming.