Navigating the New OMB Compliance Supplement: What You Need to Know

The much-anticipated 2023 OMB Compliance Supplement was issued in May 2023; however, it is effective for year ends beginning after June 30, 2022, so the new Supplement will be in effect for the first time for year ends of June 30, 2023. For example, an ongoing December 31, 2022, audit that is issued prior to the September 30, 2023, due date should still follow the 2022 OMB Compliance Supplement.

The Compliance Supplement contains the audit objectives for most federal programs but entities subject to the Single Audit can also find the compliance supplement useful in preparing the Schedule of Federal Expenditures. Another benefit of the compliance supplement in addition to the actual grant agreements would be reading the actual compliance requirements of the entities’ grants that are subject to the Single Audit. The specific compliance requirements are found in Part 3 of the Compliance Supplement. One of the new highlights of the 2023 supplement is found in Part 3. For procurement there is a new “Build America Buy America Act” that is required to be followed for infrastructure projects that began after May 14, 2022.

It is helpful for Single Audit entities to know which of the compliance requirements the auditors will need to test, and Part 2 of the Compliance Supplement provides in a matrix the specific requirements chosen by the federal agencies. Federal agencies are required to only chose six compliance areas out of the possible twelve but these six could change from year to year, so it is important to review which six are applicable each year. When reviewing the matrix, Yes or No answers highlighted in yellow indicate a change in applicability from the prior year.

Due to the fact the Auditees are responsible in preparing the Schedule of Federal Expenditures it is important to understand “Program Clusters.”  Program Clusters are a group of related programs that share common compliance requirements. Examples include the Student Financial Aid Cluster and the Aging Cluster. Part 5 of the Compliance Supplement lists all the clusters in existence for 2023. Due to COVID some new clusters were created, or new federal programs were added to existing clusters so review of Part 5 is critical for Auditees. There were also some federal programs within the cluster that were “decoupled” so occasionally clusters are removed from the compliance supplement.

Part 8 of the compliance supplement contains various appendices. Appendix V lists the changes for the compliance supplement. One of the more prominent changes centered on Cash Management. The revised requirement requires the auditor to assure that expenditures selected for testing must have been incurred prior to the reimbursement request of the Auditee.

Another key change found in the compliance supplement involves the Reporting Compliance requirement. Auditors are now only required to test specific items found in performance or special reports that are quantifiable and capable of evaluations against objective criteria. If no key items are identified, then the auditor is only to test if reports were submitted timely.

Appendix IV in Part 8 of the compliance supplement contains the federal programs considered Higher Risk. This appendix is equally important for auditors and auditees since it will continue to affect which federal programs are chosen as major programs to be tested. Prior to COVID the only federal program considered higher risk was the Medicaid Cluster. Many different federal programs introduced during the COVID pandemic were added to the list of Higher Risk programs. Assistance listing number (ALN) 84.425 Equalization Stabilization Fund, 93.498 Provider Relief Furnd and American Rescue Plan, and 21.027 Coronavirus State and Local Fiscal Recovery Funds continue to be among the programs that are considered Higher Risk and are more likely to be chosen again as major programs. It is important to review the list for programs added or deleted from the Higher Risk designation and to note programs that received additional COVID funding that could make them higher risk. For auditees that expend less than $25,000,000 in federal expenditures, Type A programs are federal programs that are $750,000 or greater. If an auditee has a Type A program contained in the list of Higher Risk programs found in Appendix IV, it will need to be tested as a major program even if it was tested in the prior year.

Appendix VII notes the transition of the Federal Audit Clearinghouse from Census to GSA by October 1, 2023. The new web address will be https://www.fac.gov/. All Single Audits with a year ending in 2023 will need to be submitted on the new website. The main reason the October 1, 2023, date was determined is all December 31, 2022, year ends would be due to Clearinghouse house no later than September 30, 2023, so they would still be submitted using the current Census website.

During this Federal Audit Clearinghouse Transition Appendix VII contains a waiver regarding the 30-day aspect of submission. You will recall the due date of the reporting package sent to the Clearinghouse is the EARLIER of nine months after year-end or thirty days from receipt of the Single Audit from the auditor. Because entities with earlier 2023-year end dates could be in violation of the 30 day rule the waiver of this requirement is in effect for 2023, therefore, the only due date for 2023 Single Audits is nine months after the year end date.

If you have questions about the new OMB Compliance Supplement and would like to discuss further, please reach out to Ray Krouse or contact us here.