An OMB A-133 Audit in a Nutshell

Every year, Senator Tom Coburn releases what he calls the Wastebook, a document that details government spending he finds unjustifiable. The 2013 version detailed such grants as $284,300 that the International Trade Administration spent to send indie rock executives on a trip to Brazil and a $10,000 NEA grant to a group of Texas energy company employees who create choreographed dances with their bucket trucks. While it’s easy to imagine that some of the $600 billion in federal grants may not be spent optimally, thousands of nonprofits can vouch for the fact that federal funds come with stringent and taxing requirements. For nonprofits, local governments, and other organizations, the OMB A-133 audit is the source of hair-pulling stress and nightmares about missing documents. The A-133—which can be expensive to prepare for and which typically requires the hire of an outside auditing firm—ensures that organizations are fiscally in accordance with GAAP and fully compliant with government regulations, such as allowable and unallowable costs and the correct calculation of indirect rates. The A-133 also looks at program effectiveness. The A-133 may seem less burdensome if you remember that it was actually conceived of as a way to simplify auditing requirements. Before the Single Audit Act of 1984 (extended to nonprofits by the A-133 circular in 1990), various federal programs carried out audits according to their own systems and structures. The A-133 delivered relief from that unwieldy process. New rules that were announced in late 2013 elevate the single audit dollar amount from $500,000 to $750,000. According to the GAO, this will relieve about 5,000 organizations from the burden of the audit—while still leaving 99 percent of the dollars dispersed in federal grants audited. The new rules also raise the minimum threshold for Type A/B program determination from $300,000 to $500,000. Even with the new thresholds, it’s important for organizations to monitor their accrued grants to ensure that, if they reach the threshold, they undergo the audit. In some cases organizations receiving multiple small grants may not be aware that their cumulative total has passed the threshold that triggers the audit. Adding complexity is that some grants may be pass-through—meaning they originate with the federal government and are passed through a second agency on their way to the organization. Pass-through grants are identified as such in the grant language. The new rules also try to make the audit less about strict compliance and more about ensuring a high level of performance. They do this by relaxing the burden of compliance to allow innovative program designs; encouraging more fixed amount awards, which minimize compliance requirements; creating more robust guidance about measuring performance; and loosening some of the strict regulations to allow compensation to be more connected to performance. The A-133 audit is burdensome, but it’s evolving to be more focused on actually making sure that taxpayer dollars are well spent. While the use of tax funds to fund bucket truck choreography may remain the subject of debate, the cost to comply with A-133 is money well spent compared to funds that are dissipated through waste, fraud, and abuse.