Clarification of Audit Requirements

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In light of the recent problems involving the Public Housing Agencies (PHAs) submission of un-audited/audited financial statements, our office is forwarding this message as a reminder of the subject federal audit regulation. This is due to the fact that a few PHAs have communicated a need for clarification regarding audit requirements; i.e., when they are expected to procure an audit and when they are not expected to procure an audit, etc.

The Single Audit Act Amendments of 1996 (P.L. 104-156) require nonfederal entities that expend $300,000 or more in a year in federal awards to have a single or program-specific audit conducted for that year. The audit threshold was increased to $500,000 or more for fiscal years ending (FYE) after December 31, 2003 (See Federal Register/Vol. 68, No. 124, June 27, 2003). If a PHA's federal award expenditures do not reach the threshold of $300,000 (as of December 31, 2003 - $500,000 or more), it has the option to procure a Government Auditing Standards (GAS), also known as a "Yellow Book" audit or a Generally Accepted Auditing Standards (GAAS) audit.

Chapter five of the Public Housing Agency and Auditor 8.0.0.0 User Guide (04/30/04) has been updated. It should be noted that the HUD/REAC has recently stated the following:

"For 6/30/2004 and beyond submissions, the unaudited DCF templates have been modified to remove information related to the forthcoming audit". Additionally, the Director of the HUD/REAC/FASS most recently stated the following: "please remind the PHAs that they are required to submit an A-133 audit if federal awards are greater than the A-133 threshold and they are required to submit a non-A-133 audit (yellow book) if they have been paid for an audit through the Operating Subsidy 52723 budget. Also, if the PHA selects unaudit/non-A133 for their unaudited submission, then the PHAS system will look for an audit nine months after the PHAs FYE".

If a PHA's federal expenditures for a FYE does not reach the threshold referenced above, and if it does not procure any type of audit, it is important that the proper submission type is selected when the PHA electronically submits its unaudited financial statements to the HUD/REAC/FASS. When the un-audited financial statements are electronically submitted, the selection options are the following:

1. Unaudited/A-133 Audit
   
2. Unaudited/Non-A133 Audit
   
3. Unaudited/No Audit

Please note that option 1 is for PHAs with federal expenditures meeting the dollar threshold requirements of the Single Audit Act Amendments of 1996; if selected it informs the HUD/REAC that audit procurement actions for an A-133 audit will be completed within 9 months of the PHA's FYE. Option 2 is for PHAs with federal expenditures not meeting the dollar threshold requirements of the Single Audit Act Amendments of 1996; if selected it informs the HUD/REAC that audit procurement actions for either a GAS audit or a GAAS audit will be completed within 9 months of the PHA's FYE. Option 3 is for PHAs with federal expenditures not meeting the dollar threshold requirements of the Single Audit Act Amendments of 1996; if selected it informs the HUD/REAC the PHA will not procure an A-133 audit, a GAS audit, or a GAAS audit for the FYE. If either option 1 or option 2 is selected by the PHA, the audited financial statements/audit report must be electronically submitted to the HUD/REAC by the audit due date, which is always 9 months after the PHA's FYE. Since some PHAs were recently late in their submittal of their audited financial statements/audit reports to the HUD/REAC/FASS, we recommend that they utilize the guidance of the GAAP flyer #6 for future optional audits or required audits. The GAAP flyer #6 guidance will assist your PHA in submitting its audited financial statements/audit reports to the HUD/REAC/FASS deadline set by the HUD/REAC. It is the PHA's responsibility to ensure that the audited financial statements/audit reports` are submitted to the HUD/REAC on time.

OMB Circular A-133 §___.225 states the following regarding potential sanctions for noncompliance to the Single Audit Act of 1996:

X "No audit costs may be charged to Federal awards when audits required by this part have not been made or have been made but not in accordance with this part. In cases of continued inability or unwillingness to have an audit conducted in accordance with this part, Federal agencies and pass-through entities shall take appropriate action using sanctions such as:

(a) Withholding a percentage of Federal awards until the audit is completed satisfactorily;

(b) Withholding or disallowing overhead costs;

(c) Suspending Federal awards until the amount is conducted; or

(d) Terminating the Federal award."

If you have any questions regarding the subject audit regulations or the HUD/REAC/FASS data submission reports, please contact Ninfa Andrew, Financial Analyst at (210) 475-6800, ext. 2220; or Byron Gulley, Financial Analyst, at (210) 475-6800, ext. 2109.