Be Prepared for Increased Accountability Requirements Related to the American Recovery and Reinvestment Act

It’s not just major corporations that will be benefiting from the American Recovery and Reinvestment Act (ARRA)
RSM McGladrey
2009/07/31
A large number of not-for-profit organizations will also find that they too will have access to a large portion of the more than $780 billion marked for economic recovery. If you haven’t already done so, we suggest you visit the official federal government ARRA web site at www.recovery.gov for more information about the Act.
Of specific importance to us all is the President’s promise of accountability. “We cannot overstate the importance of this effort,” said President Obama. “We are asking the American people to trust their government with an unprecedented level of funding to address the economic emergency. In return, we must prove to them that their dollars are being invested in initiatives and strategies that make a difference in their communities and across the country. Following through on our commitments for accountability and openness will create a foundation upon which we can build as we continue to tackle the economic crisis and the many other challenges facing our nation."
The federal government has concluded that the single audit process will be a major component of their plan for determining accountability and evaluating the expenditure of federal awards by not-for-profit organizations. Most ARRA programs will bear unique CFDA (Catalog of Federal Domestic Assistance) numbers, specifically identifying them as ARRA awards. However, you should not assume this information will be readily available, especially if you do not receive such funds directly from the federal government. Although the funding source is required to provide this information up-front to you, we suggest you obtain formal representations from them concerning the source and CFDA number for any awards you suspect to be of a federal origin. This should be done before you start to actually receive or expend funds, not after, because, you will also need to obtain relevant information about applicable laws, regulations and award provisions concerning the use and accountability for such funds.
As part of your ability to demonstrate accountability, if your organization has or is planning to participate in any federally funded programs, you will want to take steps as soon as possible to develop or enhance existing internal controls to ensure compliance with all of the many laws, regulations, and award provisions that will apply to the various federal programs, including those under which ARRA awards will be made. To avoid noncompliance and reports of control deficiencies, these controls should be in place before you actually start to expend federal awards.
To date, key provisions of the Single Audit Act and OMB Circular A-133 have not changed as a result of the ARRA. However, because of the President’s pledge for accountability, it is likely that many not-for-profit organizations participating in federal awards that were not previously subject to a single audit will be required to have one. Other not-for-profit organizations that have had single audits in the past may find that they have a number of new programs, or they are participating in new clusters, that will need to be audited as major.
Under provisions of the ARRA, single audit information, which includes the entities financial statements and auditor’s reports, including those on internal control and compliance, will be made readily available to the public. While this is clearly in line with the President’s mandate for accountability, this could be especially embarrassing for organizations if their single audit reports are other than unqualified and/or findings are reported. Additionally, members of the Federal Inspectors General community have indicated their plans to closely monitor single audit quality and the results of single audits.
If you have or are planning to participate in ARRA awards, we recommend you obtain as much information as possible about the proposed awards before you agree to participate; the organization is prepared for any additional cost and effort associated with the potential design/re-design and implementation of effective internal controls; and you prepare for the impact and cost of any additional single audit requirements.