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COMMENT DUE DATE:  

February 1, 2013

DATE: 

January 2, 2013

Molly Green, OIG  (405) 522-0541

Pat McCracken, OIRP  (405) 522-1017

Dena Thayer, OIRP Programs Administrator  (405) 521-4326

RE:  

APA WF 12-11

It is very important that you provide your comments regarding the DRAFT COPY of policy by the comment due date. Comments are directed to *STO.LegalServices.Policy@okdhs.org

The proposed policy is  Permanent .  This proposal is subject to the Administrative Procedures Act

The proposed policy is permanent and the proposed effective date is July 1, 2013.

CHAPTER 2. ADMINISTRATIVE COMPONENTS

Subchapter 7. Office of Inspector General

Part 3. Single Audit Guide Audits of Grant Recipients and Subrecipients

OAC 340:2-7-25 through 340:2-7-30 [AMENDED]

(Reference APA WF 12-11)

SUMMARY:The proposed revisions to Subchapter 7 of Chapter 2 amend the rules to align rules with current practices of the Office of Inspector General (OIG).Proposed amendments add clarifying language and remove unnecessary and outdated language.

SUBSTANTIVE CHANGES:

340:2-7-25 through 340:2-7-26 and 340:2-7-28 through 340:2-7-30 are amended to add clarifying language and remove unnecessary and outdated language.

340:2-7-27 is amended to: (1) add clarifying language; (2) remove unnecessary and outdated language; and (3) add language to reference the OKDHS Audit Oversight Committee.

PERMANENT RULEMAKING APPROVAL IS REQUESTED.

LEGAL AUTHORITY:Director of Human Services; Section 162 of Title 56 of the Oklahoma Statutes; and Section 7501 et seq. of Title 31 of the United States Code.

Rule Impact Statement

To:Programs Administrator

Office of Intergovernmental Relations and Policy

From:Tony Bryan, Inspector General

Office of Inspector General

Date:January 3, 2013

Re:CHAPTER 2. ADMINISTRATIVE COMPONENTS

Subchapter 7. Office of Inspector General

Part 3. Single Audit Guide Audits of Grant Recipients and Subrecipients

OAC 340:2-7-25 through 340:2-7-30 [AMENDED]

(Reference APA WF 12-11)

Contact:Molly Green, 405-522-0541

A.Brief description of the purpose of the proposed rule:

Purpose.The proposed revisions to Subchapter 7 of Chapter 2 amend the rules to align rules with current practices of the Office of Inspector General (OIG).Proposed amendments add clarifying language and remove unnecessary and outdated language.

Strategic Plan impact. The proposed rules achieve OKDHS goals by continuously improving processes to achieve OKDHS goals and by preserving the integrity of OKDHS programs and services through audits of grant recipients and subrecipients to detect areas of fiscal waste and non-compliance.

Substantive changes.

340:2-7-25 through 340:2-7-26 and 340:2-7-28 through 340:2-7-30 are amended to add clarifying language and remove unnecessary and outdated language.

340:2-7-27 is amended to: (1) add clarifying language; (2) remove unnecessary and outdated language; and (3) add language to reference the OKDHS Audit Oversight Committee.

Reasons. The proposed revisions align rules with current practices of OIG, add clarifying language regarding audit requirements, and remove unnecessary and outdated language.

Repercussions. The proposed rules update language to reflect current practice and clarify audit responsibility. If the proposed revisions are not implemented, OIG rules would retain unclear, unnecessary, and outdated language.

Legal authority.Director of Human Services; Section 162 of Title 56 of the Oklahoma Statutes; and Section 7501 et seq. of Title 31 of the United States Code.

Permanent approval. Permanent rulemaking approval is requested.

B.A description of the classes of persons who most likely will be affected by the proposed rule, including classes that will bear the costs of the proposed rule, and any information on cost impacts received by the Agency from any private or public entities: The classes of persons most likely to be affected by the proposed rules are grant recipients and subrecipients contracted by OKDHS. The affected classes of persons will bear no costs associated with implementation of the rules.

C.A description of the classes of persons who will benefit from the proposed rule: The classes of persons who will benefit are grant recipients and subrecipients contracted by OKDHS and the citizens of Oklahoma.

D.A description of the probable economic impact of the proposed rule upon the affected classes of persons or political subdivisions, including a listing of all fee changes and, whenever possible, a separate justification for each: The revised rules do not have an economic impact on the affected entities. There are no fee changes associated with the revised rules.

E.The probable costs and benefits to the Agency and to any other agency of the implementation and enforcement of the proposed rule, the source of revenue to be used for implementation and enforcement of the proposed rule and any anticipated effect on state revenues, including a projected net loss or gain in such revenues if it can be projected by the Agency: The probable cost to OKDHS includes the cost of printing and distributing the rules, which is estimated to be less than $10. The revised rules will result in enhanced clarification of audit responsibilities for grant recipients and subrecipients who contract with OKDHS.

F.A determination whether implementation of the proposed rule will have an impact on any political subdivisions or require their cooperation in implementing or enforcing the rule: The proposed rules do not have an economic impact on any political subdivision, nor will the cooperation of any political subdivisions be required in implementation or enforcement of the rules.

G.A determination whether implementation of the proposed rule will have an adverse economic effect on small business as provided by the Oklahoma Small Business Regulatory Flexibility Act: There are no anticipated adverse effects on small business as provided by the Oklahoma Small Business Regulatory Flexibility Act.

H.An explanation of the measures the Agency has taken to minimize compliance costs and a determination whether there are less costly or non-regulatory methods or less intrusive methods for achieving the purpose of the proposed rule: There are no less costly or nonregulatory methods or less intrusive methods for achieving the purpose of the proposed rules.

I.A determination of the effect of the proposed rule on the public health, safety, and environment and, if the proposed rule is designed to reduce significant risks to the public health, safety, and environment, an explanation of the nature of the risk and to what extent the proposed rule will reduce the risk: The proposed rules have no anticipated direct impact on the public health, safety, and environment.Audits help ensure accountability of public funds used by grant recipients and subrecipients who contract with OKDHS by detecting areas of fiscal waste and non-compliance.

J.A determination of any detrimental effect on the public health, safety, and environment if the proposed rule is not implemented: If the proposed rules are not implemented, Oklahoma citizens and grant recipients and subrecipients who contract with OKDHS will not have updated and concise rules regarding required audit responsibilities.

K.The date the rule impact statement was prepared and, if modified, the date modified: Prepared November 9, 2012 and modified December 13, 2012.

SUBCHAPTER 7. OFFICE OF INSPECTOR GENERAL

PART 3. SINGLE AUDIT GUIDE AUDITS OF GRANT RECIPIENTS AND SUBRECIPIENTS

340:2-7-25. Purpose

Issued 6-16-95 Revised 7-1-13

The rules in this part conform to the Federal Single Audit Act of 1984 [Public Law 98-502] and implementation of Single Audit Policy for Recipients of Federal Grants and State Grants.The purpose of the rules in this Part is to assist DHS departments, nonprofit agencies and their auditors prepare annual organization-wide financial and compliance audits describe the rules governing required audits of grant recipients and subrecipients contracted by the Oklahoma Department of Human Services (OKDHS) to perform services for OKDHS and its clients.The rules in this Part are not intended to be a complete manual of procedures, nor should they supplant the auditor's judgment of audit work required in a particular situation.

(1) The auditor should include special reports requested by program managers in the Supplemental Information Section of Single Audit Reports.Charges for additional audit work should be made to specific funding sources or individual programs.Although other performance audits, such as economy and efficiency and program audits are not required, they may be performed at an additional charge to funding sources or programs requesting such audits.However, all work performed must build upon completed financial and compliance audit work.

(2) The rules in this part are to be used as a supplement to the following publications:

(A) American Institute of Certified Public Accountants (AICPA), Audits of State and Local Governmental Units.

(B) General Accounting Office (GAO).Government Auditing Standards.

(C) Office of Management and Budget (OMB):

(i) Circular A-133 Audits of Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations;

(ii) Circular A-122:Cost Principles for Nonprofit Organizations;

(iii) Circular A-128:Audits of State and Local Governments and "Common Rule";

(iv) Compliance Supplement for Single Audits of State and Local Governments - Uniform Requirements for Grants to State and Local Governments (Compliance Supplement, Revised);

(v) Compliance Supplement for Audits of Higher Learning and Other Nonprofit Institutions.

(3) Each Department of Human Services program area has the responsibility to ensure compliance to single audit report requirements.However, it is each division's responsibility to include single audit report requirements in their standard contractagreements.Prior to the start of audit work, DHS program personnel, nonprofit organizations and their auditors should have a clear understanding and agreement on single audit report requirements.A clear up-front understanding of audit report requirements will insure acceptance of single audit reports by federal and state funding agencies and eliminate additional audit work resulting from desk reviews of audit reports.

340:2-7-26. Selection of auditors

Issued 6-16-95 Revised 7-1-13

When a grant recipient or subrecipient contracted by the Oklahoma Department of Human Services selects an independent auditor to perform a required audit, The the auditor is required to be a certified public accountant, a registered municipal accountant, or a licensed public accountant licensed prior to December 31, 1970.In addition, the auditor must possess adequate organization to provide impartial opinions, conclusions, judgments, and recommendations.Auditors will be selected by bids and must be approved by the Office of Inspector General.

(1) The audit must be planned to ensure audit work and report requirements will be completed not later than one year from the end of audit period.However, each DHS department has discretion to require audit work and reports be completed more timely generally stipulated by contract to be within 90 days of the contractor's fiscal year end.Written audit reports are to be submitted to appropriate officials of DHS within 30 days after the completion of audit work.

(2) Each audit report will be desk reviewed by Office of Inspector General for the subrecipient to insure compliance with requirements of Single Audit act of 1984, OMB Circular A-133 or A-128, Government Auditing Standards, and the rules in this Part.Additional review of audit work will be performed on an as-needed basis.

340:2-7-27. Audit scope

Issued 6-16-95 Revised 7-1-13

The Single Audit Act of 1984, OMB Circular A-128 and DHS policy require annual organization-wide audits.All OMB Circular A‑133 audits must be performed on an organization-wide basis.The audit must be performed by an independent auditor in accordance with generally accepted government auditing standards covering financial and compliance audits (GAO's GovernmentAuditing Standards).

(1) The Single Audit Report must fulfill requirements of all levels of government users.The auditor must:

(A) determine that financial statements of organizations present fairly its financial position and results of its financial operations in accordance with generally accepted accounting principles (GAAP) applied on a basis consistent with the preceding period;

(B) provide an opinion on fairness of:

(i) Schedule of Federal Awards;

(ii) Schedule of State Awards;

(C) determine if organization has sufficient internal administrative and accounting control systems to provide reasonable assurance programs are being managed efficiently and adequate records are being maintained;

(D) determine if organization has complied with laws and regulations having a material effect on its financial statements of each program to assure all costs are reasonable and applicable.

(2) Therefore, independent auditors must become fully aware of all applicable legal and regulatory requirements concerning all funds received by the organization being audited.This includes Federal, State, Local and other levels of government funding.

(3) Also, due professional care must be exercised when choosing tests and procedures in preparing reports.At a minimum, consideration must be given to the necessity of work to achieve audit objectives, materiality of audit samples when applying test procedures, effectiveness of internal controls, and cost versus benefits of audit work planned.

(a) Audit work requirements.Required audits of grant recipients and subrecipientscontracted by the Oklahoma Department of Human Services (OKDHS) must be organization-wide audits.Each OKDHS program area must ensure compliance with audit requirements and include audit requirements in its standard contract agreements.Audit work must meet:

(1) applicable Government Auditing Standards established by the United States Government Accountability Office;

(2) auditing directives specified in circulars issued by the United States Office of Management and Budget;

(3) standards issued by the Financial Accounting Standards Board; and

(4) standards issued by the American Institute of Certified Public Accountants.

(b) Audit completion.All audit work and report requirements must be completed no later than nine months from the fiscal year end of the recipient or subrecipient.An OKDHS division may require audit work and reporting requirements to be completed in a shorter time frame when stipulated by contract.

(c) Audit working papers.All audit working papers:

(1) must be kept on file for three years or until all questioned items have been resolved;

(2) must be available for inspection by the audited organization, the federal and state funding agency, and other authorized individuals; and

(3) may be reviewed by the OKDHS Audit Oversight Committee.

340:2-7-28. Audit report content

Issued 6-16-95 Revised 7-1-13

(a) Preparation of audit report.The auditor should observe the following requirements in the preparation of the audit report: The audit report must include all reports required by the standards listed in OAC 340:2-7-27(a) and any contractually specified requirements.

(1) clearly identify each financial statement;

(2) clearly identify time period(s) audited;

(3) disclose any unaudited time period which report does not cover;

(4) clearly identify each program included in audit report;

(5) identify any limitation on scope of examination;

(6) identify any statutory or administrative provisions adversely affecting accounting principles in use by agency, program or activity;

(7) if a qualification is required, because of a lack of consistency that is material to the financial report, prepare a statement describing the reason for qualification, effect upon financial reports, and an opinion on acceptability of change;

(8) note whether audit work was performed by more than one principal auditor.If noted in scope paragraph, also note in opinion paragraph.State division of responsibility and magnitude of portion of financial statements examined by each auditor;

(9) state whether financial statements are presented in accordance with generally accepted accounting principles;

(10) disclose any departures from generally accepted accounting principles in qualified opinion;

(11) include separate explanatory paragraphs disclosing each substantive reason for withholding an unqualified opinion;

(12) explain whether each reason for withholding an unqualified opinion results in a qualification, adverse or disclaimer of an opinion;

(13) under separate report, describe any fraud, abuse, or illegal acts and the possible effect upon entity's financial statements;

(14) include in audit report:

(A) a combining balance sheet;

(B) a combining statement of revenues, expenditures and changes in fund balances.(Funds must be separately identified by function, source or contract in basic financial statements or in a supplementary schedule.);

(C) a Statement of Cash Flows;

(D) a schedule of findings and questioned costs;

(E) a schedule of federal awards with notes.Placed in Supplemental Information section of report;

(F) a schedule of state awards placed in the Supplemental Information section of report;

(G) report(s) on internal controls;

(H) report(s) on compliance;

(I) Supplementary Schedule of Revenues and Expenditures - Budget and Actual - (for cost reimbursement contracts with preapproved budgets);

(J) Supplementary Schedule - Supported Living Overpayments (DDSD supported living contractors only); and

(K) date and signature of the auditor.

(b) Notes on financial statements.The auditor should comment in the notes to the financial statements on the following:

(1) entity as being defined in such a manner that all known federal and state awards will be included in audit;

(2) accounting policies including those that might have an adverse effect upon federaland state awards;

(3) contingent liabilities payable to federal and state governments;

(4) any material violation of finance related legal and contractual provisions that affect or could affect federal and state awards;

(5) subsequent events that affected or could affect federal and state awards;

(6) identity of employee groups covered by entity's pension plan any pension obligations;

(7) any changes in amortization of past and prior service costs, a change in treatment of actuarial gains and losses, a change in actuarial method or assumptions;

(8) any new pronouncements by authoritative bodies that have been implemented;

(c) Internal controls.This Section discusses evaluation of internal controls (accounting and administrative), and auditing considerations and procedures that should be considered by auditors in conducting audits of nonprofit entities.

(1) The extent of the auditor's study and evaluation of internal control (accounting and administrative) systems used in administering major federal and state financial assistance programs should be the type of study and evaluation the auditor would perform in accordance with AICPA requirements (i.e., Audits of State and Local Governmental Units (50 percent rule), Statement on Auditing Standards (SAS) No. 55, Consideration of the Internal Control Structure in a Financial Statement Audit, etc.).(OMB) Circular A-110 states that recipient financial management systems should provide for:

(A) an orderly set of records supported by source documentation;

(B) current, accurate and complete disclosure of financial results of each Federal and State sponsored project or program;

(C) adequate identification of source and application of funds for federal and state sponsored activity;

(D) effective control and accountability for funds, property and other assets;

(E) minimizing time elapsing between receipt and expenditure of funds for advance payments;

(F) determining reasonableness, allocability and allowability of costs in accordance with provisions of applicable cost principles and terms and agreements of awards; and

(G) assuring subrecipients also meet requirements of this Part.

(2) Auditors are expected to perform sufficient tests to form an opinion as to adequacy of described financial management system.The following five critical elements, having significant impact on federal and state funding, must be addressed to meet objectives discussed in this Part:

(A) management information system (internal control);

(B) accounting system;

(C) cash management;

(D) reporting systems; and

(E) property management.

(3) Auditors should exercise professional judgment to determine any additional areas that need to be addressed to accomplish overall audit objectives set forth in this Part.It is recognized that some systems affecting federal and state activities, at major nonprofit organizations, are complex and require extensive effort to perform studies and evaluation of them. In addition, auditors should:

(A) reference all financial statements presented;

(B) comply with GAO's Government Auditing Standards, AICPA's Audits of State and Local Governmental Units and OMB Circulars A-133, Audits of Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations or OMB Circular A-128, Audits of State and Local Governments;

(C) clearly describe examination and responsibilities on internal controls;

(D) identify significant internal accounting controls and those controls designed to provide reasonable assurance that federal and state programs are being managed in compliance with laws and regulations;

(E) identify controls not evaluated, as well as those evaluated;

(F) identify any reportable conditions and whether they constitute material weaknesses in internal controls;

(G) include recommendations for corrective action to improve problem areas noted in report;

(H) include any recommendations for improvements in internal control process of entity's operation; and

(I) date and sign audit report.

(d) Compliance.Compliance tests must be designed to meet federal testing levels or for state funds, to establish an opinion an compliance with laws and regulations per Government Auditing Standards.

(1) The auditor should:

(A) use federal government's definition of major programs, as explained in OMB Circular A-128, for federal programs, or OMB Circular A-133 for Non-Profit Organizations;

(B) use state government's definition of programs, as explained in state contracts;

(C) identify compliance by using:

(i) OMB Compliance Supplement for Single Audits of State and Local Governments or Compliance Supplement for Audits of Higher Learning and Other Non-profit Institutions for federal compliance; and

(ii) Contract provisions and general assurances and DDSD Supported Living Audit Guidelines for Supported Living contractors for state compliance;

(D) test all majorfederal andstate programs;

(E) extend testing, if necessary, to include a sample of non-majorfederal andstate programs to insure that programs representing at least fifty (50) percent offederal expenditures and fifty (50) percent of state expenditures have been tested;

(F) reference all financial statements presented;

(G) state whether examination was performed in compliance with GAO's Government Auditing Standards, AICPA's Audits of State and Local Governmental Units or OMB Circular Letters A-133, or A-128;

(H) clearly describe examination method used and degree of responsibility being taken, should more than one auditing entity be involved;

(I) include a statement of positive assurance with laws and regulations (including compliance with laws and regulations pertaining to reimbursements for those items tested);

(J) include an expression of negative assurance for those items not tested;

(K) include an opinion on compliance with specific requirements;

(L) identify questioned costs;

(M) include recommendations for corrective action to improve problem areas noted in report on compliance;

(N) identify status of prior year findings; and

(O) date and sign audit report.

(2) The auditor is responsible for having an exit conference with representatives of audited entity and cognizant agency.Copies of draft single audit report should be available to both parties one week prior to conference for review.

340:2-7-29. Audit report distribution

Issued 6-16-95 Revised 7-1-13

The provider should The grant recipient or subrecipient must submit the completed audit report to the Office of Inspector General, no later than thirty (30) working within 30 calendar days of the report’s issuance. following the issuance of the audit report, three copies of the report to the Supervisor of Internal Audit, The report may be emailed to the Internal Audit Administrator or sent by paper copy.When the grant recipient or subrecipient submits the report by paper copy, two copies of the report are sent to Internal Audit Administrator, Oklahoma Department of Human Services, Office of Inspector General, P.O. Box 25352, Oklahoma City, Oklahoma 73125.

340:2-7-30. Resolution of audit findings

Issued 6-16-95 Revised 7-1-13

When noncompliance with terms and conditions of grant agreements, or state and federal laws and regulations is reported, a plan for corrective action must accompany the audit report.This The plan must ensure corrective measures will be are completed within six (6) months.All audit working papers must be kept on file for three (3) years or until all questioned items have been resolved, and be available for inspection by audited organization, each federal and state funding agency and other authorized individuals.

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