The Single Audit Act of 1984 (Public Law 98-502) was passed by Congress to improve auditing and management for federal funds provided to state and local governments. These funds may include grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, insurance, and direct appropriations from a number of federal agencies. Before the act, each federal agency had the authority to require an audit of each federally funded program or activity; there was no coordination among them, causing audit overlaps and organizational inefficiencies. For example, a state receiving funds from five different federal agencies could have been subjected to five different audits, performed by five different auditors consecutively or simultaneously.

The act created a single organization-wide financial and compliance audit for state and local governments receiving federal funds equal to or greater than $100,000 in any fiscal year (a fiscal year is any twelve-month period). There are four major purposes of the act.

1. To promote the efficient and effective use of audit resources
2. To establish uniform requirements for audits of federal funds provided to state and local governments
3. To ensure that federal funds, to the greatest extent practicable, are audited in accordance with the requirements of the Single Audit Act
4. To improve state and local government's financial management of federally funded programs through more effective auditing

IMPLEMENTATION

The director of the Office of Management and Budget (OMB), a federal agency, is responsible for dictating policies, procedures, and guidelines to carry out the act. These policies, procedures, and guidelines are contained in OMB Circular No. A-128, "Audits of State and Local Governments"

(1995). Circular No. A-128 and the act require the following annually.

1. An audit of the state or local government's (entity's) general-purpose or basic financial statements made in accordance with generally accepted government auditing standards covering financial and compliance audits
2. Tests of internal accounting and other control systems to provide reasonable assurance that the entity is managing federal-assisted programs in compliance with applicable laws, regulations, and the specific provisions of contracts or grants

During the course of the audit, the auditor must determine whether the entity's financial statements fairly present its financial position and the results of its financial operations in accordance with generally accepted accounting principles. The auditor must also specifically review transactions (expenditures) to determine whether the amounts were used for allowable services and recipients were eligible to receive them. In addition, the auditor must determine whether the organization has complied with laws and regulations that may have a material effect on its financial statements and on each "major federal-assisted program." ("Major federal assisted program" for state and local governments having federal-assisted expenditures between $100,000 and $100,000,000 is defined in Public Law 98-502 as any program for which federal expenditures during the year exceed the larger of $300,000 or 3 percent of such total expenditures.) Upon completion of the audit, the auditor must prepare a report that includes:

1. Reports on financial statements and schedule of federal funds, the financial statements, and the schedule of total expenditures of federal funds
2. A report on the study and evaluation of internal control systems that identifies the controls evaluated and material weaknesses, if any
3. A report on compliance stating positive assurance for items tested, negative assurance for items not tested, a summary of cases of noncompliance, and identification of the total amount of expenditures questioned

If the auditor discovers fraud or illegal acts, a separate report is required. The state or local government audited must also provide a report containing comments on the findings and recommendations in the auditor's report and details of corrective actions taken or planned if necessary.

The Single Audit Act of 1984 did not include colleges, universities, and other not-for-profit organizations receiving federal funds. These organizations continued to be subjected to audit overlaps and inefficiencies until 1990, when the Office of Management and Budget issued Circular A-133, "Audits of Institutes of Higher Education and Other Non-Profit Institutions," to extend requirements similar to those in the Act and Circular A-128 to colleges, universities, and other not-for-profit organizations.

SINGLE AUDIT ACT AMENDMENTS OF 1996 (PUBLIC LAW 104-156)

In 1996, Congress amended the Single Audit Act to streamline and improve its effectiveness. The amended act applies to state and local governments, colleges, universities, and not-for-profit organizations that expend (spend) Federal funds equal to or greater than $300,000 in any fiscal year. Major changes to the 1984 act include the following:

1. All state and local governments, colleges, universities, public hospitals, and not-for-profit organizations receiving federal funds are covered under the act.
2. Thousands of entities were exempted from the federally mandated single audit by raising the dollar threshold from $100,000 to $300,000. The Office of Management and Budget is authorized to adjust the threshold amount every two years.
3. Audit requirements are triggered by federal funds "expended" rather than merely "received."
4. The audit report due date is shortened from thirteen months to nine months.
5. Auditors are required to identify major programs for compliance audits based on risk assessment rather than solely on the basis of the total dollar amount of expenditures.
6. The auditor is required to prepare and sign a data-collection form, which is submitted to the federal clearinghouse, instead of sending the full single audit report.
7. A provision is made for pilot projects to test alternative ways of achieving the objectives of the single audit process. For example, the act specifically authorized one creative approach to consider multiple local government entities that operate the same federal programs as a single entity for a single audit.

The Single Audit Act Amendments of 1996 addressed a number of issues that emerged during and after the implementation of the Single Audit Act of 1984. The amendments exempted entities receiving relatively small amount of federal funds, enacted guidelines to ensure that high-risk programs are subject to audit, and simplified reporting requirements.