Sec.17a-306-38. Audits

Subsection (b) of Section 7-396a of the General Statutes requires that any agreement for a State grant entered into between a State agency and a public or private agency shall provide for an audit of grant expenditures which is acceptable to such State agency. This section presents the Connecticut Department on Aging's policy on what constitutes an acceptable audit. That is, to ensure the quality of audits in the Connecticut aging network, the Commissioner on Aging directs the Connecticut aging network to implement the Single Audit Act of 1984 and OMB Circular A-128, or OMB Circular A-133, Audits of Institutions of Higher Education and Other Nonprofit Institutions, which ever is applicable.

(a) Agency Wide Audit, Requirement for

Each area agency on aging receiving $100,000 or more of funding from the Connecticut Department on Aging will have conducted an annual audit in accordance with the Single Audit Act of 1984, P.L. 98-502, and OMB Circular A-128, or OMB Circular A-133 which ever is applicable. Moreover, independent public accountants conducting such audits will abide by the American Institute of Certified Public Accountant's (AICPA) Audit and Accounting Guide, Audits of State and Local Government Units, as revised.

(b) Area Agencies on Aging Retain Own Independent Public Accountants

(1) Area agencies on aging shall retain their own independent public accountant, sufficiently independent of those who authorize the expenditure of Federal funds, to produce unbiased opinions, conclusions or judgments. They shall meet the independence criteria described in the text of the U.S. Government Accounting Office publication, Government Auditing Standards, Standards for Audit of Governmental Organizations, Programs, Activities, and Functions.

(2) In arranging for audit services, area agencies on aging shall follow the procurement standards in Section 17a-306-28 of this manual. In particular, small audit firms and minority owned and controlled audit firms shall have the maximum practical opportunity to participate in audit contracts awarded under this section.

(3) In soliciting and retaining auditors to conduct the annual audit, area agencies on aging must make specific reference in their request for proposal and any resulting contract that the auditor would be required to conform its audit to the requirements in the Single Audit Act of 1984, P.L. 98-502, and OMB Circular A-128, or OMB Circular A-133 Audits of Institutions of Higher Education and other Nonprofit Institutions, whichever is applicable. This would relate to the scope of the audit, standardized audit report, reportable events, monitoring by the Connecticut Department on Aging and quality assurance review, access to audit workpapers, plan for corrective action and resolution of audit findings.

(4) The audit solicitation and any resulting contract for audit services shall make specific reference that "if it is determined that the contractor's audit work was unacceptable as determined by the Connecticut Department of Aging or a Federal supervisory agency, either before or after a draft or final report was issued because it did not meet the Connecticut Department on Aging's standards, the AICPA Standards or those promulgated by the Comptroller General of the United States, the contractor may, at the area agency's written request, be required to reaudit at its own expense and resubmit a revised audit report which is acceptable."

(5) Area agencies on aging are encouraged to award multiyear audit contracts of not longer than a three year duration provided they conform to the requirements in Section 17a-306-28 (p). At the end of such a multiyear contract, area agencies on aging will observe competitive procedures in reprocuring audit services.

(c) Separate Area Agency on Aging Audit Committee

(1) It is recommended that area agencies on aging establish a separate committee of the Board of Directors to supervise the completion of the annual audit.

(2) The audit committee generally serves as liaison between the organization's Board of Directors and the auditor. The auditor should establish a working relationship with the audit committee and should inform its members of the result of the examination, particularly the discovery of material errors and irregularities, and any illegal acts or material weaknesses in internal accounting controls. The auditor may often be requested to attend meetings of the audit committee and to assist the committee in connection with its duties.

(d) Frequency of Audits and Due Date for Submission of Audit Reports

(1) The audit of area agencies on aging and their grantees and cost-reimbursement contractors shall be conducted no less frequently than annually.

(2) The audit report shall be submitted to the Connecticut Department on Aging within six months of the end of the agency's fiscal year. If for reasons within the control of the area agency on aging, this report cannot be submitted by that time, funding of the agency may be suspended by the Connecticut Department on Aging. Area agencies on aging shall make a written request for an extension of time for justifiable reasons beyond its control to the Connecticut Department on Aging before the expiration of the six month submission period. Such request shall be submitted with sufficient time for Connecticut Department on Aging review and approval.

(e) Audits of Service Providers

(1) Area agencies on aging shall ensure that all grantees and cost-reimbursement contractors receiving $25,000 or more annually shall be audited. This audit will either be conducted by a service provider-selected auditor or by the area agency's independent public accountant. All audit reports of service providers shall be made available to the area agency on aging's auditor.

(2) For grantees and cost-reimbursement contractors receiving less than $25,000 a year from the area agency on aging, the area agency may employ substitute means to satisfy itself that its subrecipient spent its funds in accordance with applicable laws and regulations. These substitute means could include, but not be limited to, audit by the area agency's accountant, program reviews, fiscal assessments, accounts examination, etc. The results of the agency's substitute means shall be documented and made available for review by representatives of the Connecticut Department on Aging for a period of three years after completion.

(f) Scope of Audit Report

The Single Audit provides that:

(1) The audit shall be made by an independent auditor in accordance with generally accepted government auditing standards covering financial and compliance audits.

(2) The audit shall cover the entire operations of an agency or, at the option of that agency, it may cover departments, agencies or establishments that received, expended or otherwise administered Federal financial assistance during the year. A series of audits of individual departments, agencies and establishments for the same fiscal year may be considered a single audit. The auditor shall determine whether:

(A) The financial statements of the agency, department or establishment present fairly its financial position and the results of its financial operations in accordance with generally accepted accounting principles.

(B) The organization has internal accounting and other control systems to provide reasonable assurance that it is managing Federal financial assistance programs in compliance with applicable laws and regulations.

(C) The organization has complied with laws and regulations that may have a material effect on its financial statements and on each major Federal assistance program.

(g) Area Agency on Aging Oversight of Service Provider Audits

(1) The area agency's auditor retained to conduct an audit of the agency should include in its audit report an opinion on the costs incurred by the area agency's subrecipients. This is normally accomplished by the area agency's auditor reviewing the subrecipients' unqualified audit report for the same period and otherwise satisfying himself or herself of the extent to which such audit report may be relied upon. Section 543.03 of the generally accepted auditing standards provides guidance to independent auditors when they either assume or not assume responsibility for another auditor's work.

(2) The area agency on aging should provide to its independent public accountant copies of all service providers' audits for an expression of an opinion on the overall agency's financial operations, including funding made available to its service providers.

(3) The area agency or its auditor shall review all service provider audits using the following guidance:

(A) In general, a determination should be made during the desk review of audited financial statements as to whether:

(i) The audit reports include financial statements and a schedule of Federal assistance, including footnotes of the recipient organization.

(ii) The financial statements cover the entire operations of the area agency, including all Federal funds known to have been received by the auditee.

(iii) The audit report:

(I) Identifies the statements examined and the period covered.

(II) Identifies the various programs under which the organization received Federal funds, and the total amount of the expenditures for each Federal program.

(III) States that the examination was made in accordance with the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions; and Guidelines for Financial and Compliance Audits of Federally Assisted Programs, issued by the Comptroller General.

(IV) Expresses an opinion as to whether the financial statements are fairly presented in accordance with generally accepted accounting principles and states the nature of any qualifications, if an unqualified opinion cannot be expressed.

(B) Report on Compliance

The auditor's report on compliance should contain a statement of positive assurance with respect to those items tested for compliance, including compliance with laws and regulations pertaining to financial reports and claims for advances and reimbursements; negative assurance on those items not tested; a summary of all instances of noncompliance; and an identification of total amounts questioned, if any, for each Federal assistance award, as a result of noncompliance.

(C) Report on Internal Control

The desk review should determine that the auditor's report on the study and evaluation of internal control systems identifies (1) the organization's significant internal accounting controls, and those controls designed to provide reasonable assurance that Federal programs are being managed in compliance with laws and regulations, and (2) the controls that were evaluated, the controls that were not evaluated, and the material weaknesses identified as a result of the auditor's evaluation.

(D) Comments on Other Matters

The desk review should determine whether the recipient has provided comments on the independent auditor's findings and recommendations and its corrective action plan to address the recommendations.

(E) Adequacy of Information Provided

The review should also determine whether the information provided by the auditor on findings identified in the report is sufficient to facilitate resolution by program officials. If the findings contain insufficient information to enable resolution by program officials, the area agency on aging should contact the recipient or subrecipient and arrange for corrective action.

(F) Further, qualified agency personnel should:

(i) Review the complete audit report and note any deviations in the report format from that prescribed in the audit contract scope of work.

(ii) Prove the clerical accuracy of all footings, extensions, etc., of all statistical data in the report.

(iii) Verify that all exhibits, schedules and supporting statements in the report are in agreement and reconcilable, where appropriate.

(iv) Review and evaluate the propriety of all questioned costs presented in the report and/or other management and internal control weaknesses.

(h) Audits of Commercial Organizations

(1) In general, the audit requirements in the various OMB circulars do not apply to commercial organizations.

(2) If an area agency intends to apply these rules on audits to a commercial organization receiving a cost-reimbursement contract, it must specify the audit requirement in the original solicitation, contractor's budget and resulting contract, or the area agency must arrange to have the records of the contractor audited by an area agency-retained auditor.

(3) Area agencies on aging normally will perform price or cost analysis of a commercial organization's fixed-price or fixed-unit-rate bid or proposal. As such, post-awards audits would not normally be conducted of a commercial organization receiving a fixed-price or fixed-unit-rate contract provided the organization performed the contract according to its terms and conditions. However, area agencies may use other means, such as first-article testing, inspection, and/or program reviews, to determine if the funds are being spent properly by commercial organizations.

(i) Period for Audit Resolution

The Area Agency on Aging will ensure that appropriate corrective action, including settlement and payment of any unacceptable costs, is taken within six months after receipt of an acceptable audit report in instances of noncompliance with Federal or State laws and regulations.

(j) Access to Records

In addition to the head of the Federal-sponsoring agency and the Comptroller General of the United States, or any of their duly authorized representatives, the Commissioner, Connecticut Department on Aging, and the Auditors of Public Accounts, and their duly authorized representatives, shall have right of access to any pertinent books, documents, papers and records of the area agency on aging and their subgrantees and contractors to make audits, examinations, excerpts and transcripts.

(k) Final Audit Adjustments

(1) The area agency on aging shall submit its final fiscal report 45 days after the end of the grant period.

(2) Because the exact accruals and adjustments the audit or may make will not be known until after the auditor submits its audit report, the final fiscal report frequently differs from the audited financial figures. The carry-over balance estimated by the area agency will frequently be different from that available after the auditor reports the costs incurred.

(3) Any material differences between the costs and carry-over balance reported by the area agency on its final fiscal report and the auditor's reported figures shall be reported to the Connecticut Department on Aging. Such report shall be in the form of a revised final report covered by a letter to the Commissioner on Aging, with a copy to the Board of Directors of the Area Agency, explaining the differences. Any changes authorized by the Connecticut Department on Aging will be reflected in an adjustment of the area agency's area plan budget.

(Effective November 8, 1991)